XN000022-1997-04-16 — Page 25

4

In this regard, we should concentrate on what we can do in the coming year. This means, most of all, establishing a rational basis for any increase in CSSA. Once that is done we should work further to find the savings for financing the increase in the course of this year or next. Some may see this determination to adhere to our "golden rule" as inflexible or rigid. But as I have said, keeping to the "golden rule" is one of the reasons Hong Kong has been able to lay a nestful of "golden eggs": our economic success, our low taxes, our steady increase in public spending and our fiscal reserves.

Fiscal Reserves

This brings me to the final point I want to make. Many members have suggested that our reserves have reached a level which is more than adequate to meet our needs.

Let me repeat what I said a year ago. This is not the time to weaken the security afforded by our fiscal reserves. This year, much more than any other, the need to maintain the stability of our financial systems must override all other considerations. Maintaining confidence, both locally and overseas, in the soundness of our financial systems is of paramount importance in the remaining months before the birth of the SARG and as we move into the new era.

Let me also put the size of our fiscal reserves into proper perspective. After taking account of the revised estimate of the surplus for 1996-97, our fiscal reserves at 31 March 1997 are $163 billion. This is equivalent to 87% of our total expenditure in 1996-97. Five years ago, the corresponding figure was 107% and fifteen years ago, it was 81%. One could argue that in relative terms, our fiscal reserves are no larger today than has been the case in the past.

But what makes today's situation very different is the prospect that from 1 July 1997 the SARG will have access to the balance which has been accumulated since 1985 in the Land Fund. This will effectively double the size of the reserves overnight. By 31 March 1998 - not now but next year - our forecast total reserves of $359 billion will be equivalent to 177% of our expenditure in the year. I agree, this is a massive

sum.

If the fiscal reserves have played a vital role in preserving the stability of our economy in the period leading to the establishment of the Special Administrative Region, then the challenge we will face is how to use these reserves to the best for the benefit of our community in the next millennium, without inviting back double-digit inflation.