CONFIDENTIAL
B.
FISCAL AND SOCIAL SECURITY
9. Lord Goronwy-Roberts said that he had been concerned at the general tenor of the Financial Secretary's speeches which did not encourage the necessary change in the general climate of opinion. In his recent budget statements to the Legislative Council, for instance, the Financial Secretary had referred to 20% of the GDP as being the limit, in his view, to public expenditure; to his expectation that this percentage would drop as the economy expanded; to his intention to return to a balanced budget by 1978/79;
and, worst of all, to the undesirability of using the fiscal system to pursue social justice. These views were inconsistent with the aims of the Planning Paper and in his view it was necessary to prepare public opinion for a change in these assumptions. He asked whether the programme set forth in the Planning Paper had been costed. Sir M MacLehose said that the agreed programmes for housing education and medical services had been costed. The provision of public assistance to able-bodied males between 15 and 55 had not been costed but was not likely to be expensive. Families were already covered by the scheme and there was virtually no unemployment at present. The additional cost to the public assistance scheme might be about 25% in the event of a further recession.
10.
Mr Cortazzi pointed out that there would be an increased burden on the revenue if the proposals for an extended social security system, including unemployment benefit based on entitlement, were to be implemented. Lord Goronwy-Roberts said that the way in which such benefits would be financed could be discussed - the UK was moving away from a social security system based on contributions to one financed from taxation - but the aim should be to introduce a system for such benefits by the end of 1980.
11. Sir M MacLehose said that he could accept that Hong Kong's social security system should be extended by a scheme of extended benefits agreed to by 1 January 1978 for introduction in a series of steps by the end of 1980 (paragraph 23 (iii) (b) of Annex C to the Planning Paper). He could not at this stage say what these extended benefits should be. In fact, he attached more importance to early measures of assistance for the handicapped,.youth and the elderly. Such measures were more relevant to Hong Kong's immediate needs than a general system of social security benefits. Until these plans had been completed and costed it would not be possible to submit proposals for extended benefits as a whole. Lord Goronwy-Roberts said that, provided the social security measures provided for in paragraph 26 of Section V of the Planning Paper were put into effect over a five year period he was prepared to leave the priorities to the Governor. However, he would like to see a fresh statement of the probable cost of the programme over five years and of the proposed budgetary policy, including taxation measures, whereby the programme would be furd ed. He accepted that the first year of the programme would be covered in the 1977/78 budget proposals. Sir M MacIehose said that the proposals for extended social security benefits could not be costed
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