XN000022-1987-02-25 — Page 15

WEDNESDAY, FEBRUARY 25, 1987

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+WHILE THE ECONOMY HAS IMPROVED IN 1986, PERHAPS BEYOND DUR EXPECTATIONS, THERE ARE, AS USUAL, SOME CLOUDS ON THE HORIZON. PROTECTIONISM STILL REMAINS A WORRYING THREAT.

+1 HAVE NO DOUBT THAT IN MANAGING OUR PUBLIC FINANCES WE SHOULD NOT TAKE ACTION THAT IS LIKELY TO AGGRAVATE THE VOLATILITY IN OUR ECONOMY. WE MUST AT ALL TIMES PAY CAREFUL ATTENTION TO THE UNDERLYING TRENDS, AND ENSURE THAT OUR BUDGETARY MANAGEMENT IS CHARACTERISED BY STABILITY.+

MR JACOBS SAID THAT HE INTENDED TO ADHERE TO THE POLICIES THAT HONG KONG HAD SUCCESSFULLY FOLLOWED IN THE PAST, AND HE SAW NO PLACE FOR DEFICIT FINANCING AS A PERMANENT FEATURE OF FISCAL POLICY, ALTHOUGH HE RECOGNISED THAT ON OCCASIONS IT MIGHT BE INEVITABLE THAT DEFICITS HAD TO BE FACED.

HE ALSO SAID HE WAS CONVINCED THAT THE GOVERNMENT SHOULD ENDEAVOUR TO MAINTAIN A LOW AND PREDICTABLE TAX REGIME.

+HONG KONG'S REPUTATION AS A PLACE IN WHICH BUSINESS CAN BE CONDUCTED PROFITABLY DEPENDS TO A LARGE EXTENT UPON OUR KEEPING TAX RATES LOW. I CAN, NEVERTHELESS, SEE MERIT IN AT LEAST CONSIDERING DIFFERENT MIXES OF TAX RESOURCES FROM TIME TO TIME, HE ADDED.

THE FINANCIAL SECRETARY POINTED OUT THAT IF THE OBJECTIVE OF MAINTAINING LOW TAXATION WAS TO BE ACHIEVED, THE GROWTH IN EXPENDITURE ON PUBLIC SERVICES MUST STAY WITHIN, RATHER THAN RUN AHEAD OF, THE EXPANSION OF THE ECONOMY.

+EVEN IN THE IMPROVED SITUATION THAT WE ARE NOW EXPERIENCING, RESOURCES REMAIN LIMITED AND CHOICES MUST BE MADE. WE MUST NOT ALLOW THE PUBLIC SECTOR TO BECOME A MILLSTONE AROUND THE NECK OF ECONOMY, SOMETHING THAT HAS HAPPENED IN MANY OTHER PLACES, + HE SAID.

IN OUTLINING THE ECONOMY'S RECENT PERFORMANCE, MR JACOBS NOTED THERE WAS A GENERAL REVIVAL IN ECONOMIC ACTIVITY IN 1986. DOMESTIC EXPORTS HAD PICKED UP SUBSTANTIALLY SINCE LAST MARCH AND ACHIEVED A GROWTH RATE OF ABOUT 16 PER CENT IN REAL TERMS FOR THE YEAR AS A WHOLE.

+WE HAVE BEEN HELPED, PARTICULARLY IN OUR EUROPEAN MARKETS AND IN JAPAN, BY THE DEPRECIATION OF THE HONG KONG DOLLAR IN LINE WITH THE U.S. DOLLAR. THIS STRONG EXPORT PERFORMANCE IS IN SHARP CONTRAST TO THE DECLINE OF 5 PER CENT RECORDED IN 1985.

/+RE-EXPORTS ALSO