TNAG-0453-FCO40-518-Budget-of-Hong-Kong-1974-1975-1975 — Page 165

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"fair" has been mentioned as part of the title I am sure

that what most of the advocates of such controls are after 13

a restriction of rents below market levels. Determining

market rents for non-residential premises would be difficult

enough without trying to decide on fair rents and the legion

of valuers and other experts likely to be needed to administer

any such measures would be quite beyond our resources at the present time, even if the idea was sound, which it is not.

(B) Government expenditure

90.

A second possible cause of internally generated

inflation was mentioned by my honourable Friend. Mr. Williams:

Government expenditure increasing at a faster rate than the

gross domestic product. As he pointed out, this could lead

to such competition for available resources that pressures

would build up on costs and prices.

91.

I am well aware of the increase in the ratio of

Government expenditure to the gross domestic product that has recently taken place (from 13.4% in 1971 to about 16.3%

in 1973 as shown in Table 4 of the Economic Background

publication). This ratio is still low by world standards

and I would not wish to be dogmatic here but, as part and

parcel of our budgetary strategy, we must ensure that

Government expenditure does not grow for any significant

length of time at a rate substantially at variance with

that for the gross domestic product. Were it to do so it

would soon outstrip the growth in revenue at existing tax

rates and could only be maintained by raising extra taxation,

which, in turn, could have consequences for the growth rate

of the economy.

92.

(C) Government pay policy

Thirdly, internally generated inflation could arise

if pay awards for the public service were to lead those given

by the private sector. In this connection, I can only go along with the thinking of my honourable Friend Mr. Hilton Cheong-Leen, namely, that Government pay awards should,

in general, be related to increases in the cost of living,

provided three conditions are met, namely, that the increase

in the cost of living is permanent, that private sector

/wages..

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