steady,
COCONFIDENTIAL ^ ⠀
I that t
(with savings deposits still equivalent to about a third of total deposits now standing at a record HK$12,000 million or HK$2600 (US$500) per head of the population). And this compares with
the government's latest estimate that this year, as in 1974, there will be zero growth in the real gross domestic product (which, in current price terms, now stands at about HK$34,000 million, or HKZ8000 (US$1600) per head of the population).
Current Budgetary Strategy
This
32. It was against the background of zero real growth for two successive years (1974 and 1975) that the government felt it had little option but to run a further budget deficit in 1975/76. was after substantially pruning its recurrent expenditure estimates and re-phasing some of its capital works projects. It was also after introducing, inter alia, a temporary surcharge of 10% on profits tax (effectively raising the standard rate from 15% to 16%), to be replaced in the near future by a dividend withholding
tax.
But the revenue shortfall is not to be financed, as in 1974/75, by further depleting the reserves. Instead it is intended that half should be financed by borrowing on the domestic money market (possibly through the issue of Treasury Bills) and that the
balance should be raised abroad.
33. Underlying this decision to borrow in the current year, is the hope that the gross domestic product will in 1976 increase by about 5% (in real terms) and that the annual rate thereafter will be rather nearer 7% on average (ie approximately the average rate for the years 1966-1973). The government was not envisaging a need to borrow other than to cover what it regarded as a temporary shortfall until the growth of the economy and hence the yield of the tax system increased. However, it is unlikely, that these future growth rates will be achieved. Although it is claimed that the economy is well-placed to take advantage of an upturn in world trade, by virtue of the fact that wage rates have levelled-off thereby helping Hong Kong to maintain its competitive edge abroad, other factors need to be borne in mind. First, bank credit is likely to remain relatively tight in the near future; secondly the upturn in worlä /demand
18
CONFIDENTIALL
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