XN000022-1995-11-29 — Page 63

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Measures to simulate economy

Following is a question by Dr the Hon David Li Kwok-po and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):

Question:

It is reported that the volume of retail sales in the first eight months of 1995 and the volume of restaurant receipts in the first half of 1995 have declined by 1.3% and 3.3% respectively as compared with the corresponding figures in the same period last year. There are also signs of a weak demand in other sectors of the service industry which might result in the closure of more business establishments, thereby aggravating our unemployment problem. In view of this, will the Administration inform this Council whether measures are being taken or planned to stimulate domestic demand as a means to avert a further rise in unemployment?

Reply:

As indicated very clearly by the Financial Secretary in his reply to this Council at the Motion Debate on 8.11.95 on measures to stimulate the economy, any arbitrary measures by the Government to counter short-term fluctuations in the economy would be ineffective or counter-productive. On cutting taxes as a stimulus, experience shows that its success in stimulating the economy is doubtful. On increasing public expenditure, the Government should spend money only when there is a real justification and need, and the increase should not be designed just to boost economic growth in the short term. In any case, given the relatively small size of the public sector, the increase in public spending would have to be very large too large to be accommodated by our prudent spending guideline -- in order to achieve any noticeable impact on the economy.

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The retail and restaurant sectors have been facing a downturn following a period of booming business in the past few years. It has been our established economic policy that the market process, rather than the Government directing intervention measures, should best be left to adjust to such cyclical fluctuations. This policy will not change. In the longer run, the solution with regard to raising economic growth lies in greater productivity, enhanced competitiveness and greater flexibility, not in more Government intervention in the economy.

End/Wednesday, November 29, 1995