TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 93

CONFIDENTIAL

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6.

Hong Kong's fiscal conservatism has recently led to a rather

blemished record in Budgeting in that underspending is occuring too often.

It might be worth considering budgeting for more expenditure and to rely

on the factors normally advanced and experienced for underspending, to

bring this down.

EMPLOYMENT

7.

(ie full)

There are some worrying aspects about employment. Hong Kong has no

effective trade unions and wage rates are flexible downwards as well as

upwards. Consequently unemployment (and public assistance) should, by

definition, normally be very low. Full employment is regarded as coinciding with a level of 41% unemployment. Even accepting measurement differences,

it is still difficult to accept this view, as in most manufacturing countries

an unemployment level of around 2% to allow for unemployables, those

switching jobs etc,is reckoned to be about par It is also pointed out

that the manufacturing sector will decline as a proportion of GDP whilst the

financial sector will grow. It is somewhat unfortunate that the former is

labour intensive and the latter not. It suggests Hong Kong's changing role.

from a manufacturing base to a financial haven; the unemployment and social

implications are obvious. More may need to be done to arrest this and

industrial incentives devised; a query could therefore arise on the New

Towns policy.

PUBLIC EXPENDITURE

8.

The Financial Secretary does not seem to have fully appreciated the

importance both past and present Secretaries of State attach to a rising

level of public expenditure. Neither world recessions or troubles on the

MFA front should be allowed to intervene to cause a repeat of the 1975 cutbacks,

or reductions in the relative size of the public sector. Whilst the Governor's

social programme has of course been accepted and costed with some room for "

"essential" new policies, from the discussions held in London in December 1976

there would still appear to lurk the (mistaken) philosophy that expenditure

in certain fields, eg higher education, is best left to the private sector -

an idea contrary to that of most other manufacturing countries.

GUIDELINES

9.

The repetitious references to local self-imposed guidelines serve

little useful purpose in defining Hong Kong's economic policies. It is

difficult to see their value. Such a line assumes a constant relationship

/ between variables

CONFIDENTIAL