XN000022-1987-02-25 — Page 19

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WEDNESDAY, FEBRUARY 25, 1987

MR JACOBS THEREFORE ADOPTED A MEDIUM RANGE PLANNING ASSUMPTION OF 5.5 PER CENT GROWTH IN QBP.

TURNING TO PUBLIC EXPENDITURE, HE SAID THE GOVERNMENT HAD SOUGHT TO CONTAIN THE RELATIVE SIZE OF THE PUBLIC SECTOR BY LIMITING EXPENDITURE GROWTH TO WITHIN THE TREND GROWTH RATE OF THE ECONOMY.

+IN RELATION TO GDP THE SHARE OF PUBLIC EXPENDITURE IS AN ESTIMATED 16.5 PER CENT FOR BOTH THE YEARS 1985-86 AND 1986–87.

*THE SHARE IS FORECAST TO HOVE UP SLIGHTLY OVER THE NEXT TWO YEARS, TO JUST UNDER 17 PER CENT BY 1988-89, IN THE LIGHT OF SOME SIGNIFICANT NEW COMMITMENTS, BUT SHOULD BEGIN TO FALL BACK THEREAFTER ON THE ASSUMPTION THAT OUR CONTROL OVER RECURRENT SPENDING REMAINS FIRM,+

FOR THE FUTURE, HE ADDED, THERE WAS ROOM FOR SOME FURTHER IMPROVEMENT IN FACILITIES AND SERVICES GIVEN THE HIGHER GROWTH LIMIT IMPLIED BY THE REVISED MEDIUM TERM PROJECTION OF ECONOMIC GROWTH.

AGAINST THIS BACKGROUND, HE PROPOSED THAT THE TOTAL EXPENDITURE GROWTH BE HELD TO AN AVERAGE OF AROUND 5 PER CENT OVER THE FORECAST PERIOD.

+RECURRENT EXPENDITURE IS ALREADY GROWING AT AN ANNUAL RATE OF JUST OVER 5 PER CENT AND I WOULD BE RELUCTANT TO SEE IT GROW MUCH FASTER HAVING REGARD TO THE IMPLICIT LONG-TERM COMMITMENT, HE SAID.

+WHILE, THEREFORE, I HAVE ALLOWED FOR SOME INCREASE IN PROVISION FOR NEW OR IMPROVED SERVICES, MY MAIN EMPHASIS IS ON A RESUSCITATION OF CAPITAL SPENDING AND AN INCREASE IN THE PAGE AT WHICH WE ARE TACKLING THE LIST OF OUTSTANDING PROJECTS, HE SAID, ADDING THAT CAPITAL EXPENDITURE HAD FALLEN BY ABOUT 20 PER CENT OVER THE LAST THREE YEARS,

ON THE REVENUE SIDE, MR JACOBS MENTIONED THE RELATIONSHIP BETWEEN DIRECT AND INDIRECT TAXES.

HE SAID THERE WAS NO IMMUTABLE OR CLEARLY CORRECT RATIO BETWEEN THE YIELDS FROM DIRECT AND INDIRECT TAXES, BUT FOR THE LONGER TERM I DO NOT BELIEVE THAT A HIGHER RELATIVE CONTRIBUTION FROM DIRECT TAXATION IS DESIRABLE FOR HONG KONG,+

/+IF OUR