In practice, of course, this Council would not approve proposals to increase government spending designed simply to boost economic growth. Quite rightly, week after week, Finance Committee demands a detailed justification of the Government's case for spending money, whether on new projects or additional posts. And if this Council stepped back from this critical monitoring role, I believe that the community would object very strongly. Hong Kong cannot relax its commitment to total accountability for public spending, to the principle of maximum value for money in public expenditure.
Modern practitioners in public finance generally agree that monetary or fiscal measures designed to increase output and employment by artificially boosting aggregate demand invariably fail. Renowned economists including Professors Friedman and Lucas have warned us that arbitrary measures by the government to counter short-term fluctuations in the economy would be ineffective or counter- productive, even for those economies with a public sector relatively much larger than Hong Kong. I feel strongly that we should heed their sound warnings. Attempting to boost economic performance through increased public expenditure is not part of Hong Kong system of public finance.
So we should not try to follow the example of economies elsewhere and push up our growth rates:
by cutting taxes, because experience shows that their success in stimulating the economy is doubtful; or
* by increasing public expenditure, because we already spend as much as is. reasonable, consistent with our commitment to small government and to financial accountability.
But that does not mean there is nothing that the Government can do to improve the business climate and to enhance the investment environment. Both the Governor and I have announced important initiatives to do so.
* I have established a task force to review what the Government can do to support the services industries. These are now the dynamo of Hong Kong's growth, the main source of our prosperity.
The Governor has directed that the Administration should give special priority to removing the bureaucratic bottlenecks to business, the redundant regulations. We want our legal and supervisory systems to encourage enterprise, instead of stifling initiative.
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