TNAG-0606-FCO40-754-Monitoring-progress-made-on-planning-papers-on-Hong-Kong-1977 — Page 14

CONFIDENTIAL

1976/77 (Revised)

HK$

1977/78 HK$

%

Difference

inc

Education

1,453

1,658

+ 205

Housing

659

1,019

+

360

Social Welfare

368

433

65

Medical & Health

662

781

+ 119

* =t8ཨྰཿæ

14

56

18

18

Labour

20

27

+

7

35

3,162

3,918

+ 756

20.4

9.

We have heard that in the last few months of the financial year 1976/77 the Finance Branch was urging departments to spend as much as possible in order to reduce the amount of under-spending. Again this year, as the Governor has already pointed out, there is the likelihood that it will not be possible to spend all the funds earmarked for cupitul works. The Governor has also stated that it is his intention to cover any unexpected "flush of expenditure" by drawing on the reserves rather than keeping within the budgetary limits.

Long-Term Financial Planning Forecast

10.

The Governor has indicated that a Budget deficit is planned for 1978/79 and 1979/80 and, at the same time, agreed that there is some scope for additional social expenditure but, as stated above, he has also given notice that it might not be possible to achieve the total increase in public expenditure provided for in this year's Budget because of administrative and physical difficulties. He has also referred to the uncertainty regarding the outlook for the world economy in 1978 and, in particular, the effect on Hong Kong of the proposals to renegotiate the Multi- Fibre Arrangement (MFA) which is due to expire at the end of this year (and on which the EEC has not yet reached agreement on its negotiating mandate. It is generally accepted that the world trade outlook for the next few years is uncertain but it is important that the Hong Kong Government should not consider that minor recessions affecting Hong Kong exports should automatically lead to cut-backs in public expenditure.

11. The Budget Speech was disappointing: it lacked an overall theme and revealed an old-fashioned and out-of-date way of looking at an economic budget. The Budget hardly seemed to take account of the direction of Hong Kong's basic economic and social objectives and the extent to which the Budget is an instrument that could be used to serve them. Mr Smith, Senior Economic Adviser, has observed that no proper link was made between the economic and social policies outlined by the Governor in his speech to LegCo in

3

CONFIDENTIAL