TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 67

SECRET

Mr JA B Stewart

(HKGD)

ARR100/2

RACIN

wu

15 FFR 1978

DESK OFFICER

INDEX

No

PA

¡Action Teen

HONG KONG 1978 BUDGET

1.

13) (a)

ATTACHED

13

(b)

(c)

You passed me three drafts for comment, namely:

your draft submission to PS/Lord Goronwy-Roberts;

draft telegram from Minister of State to Governor;

your draft letter to Governor.

2.

Whilst I have passed some minor drafting points to Mr Thompson, one particular aspect, "a past bone of contention", I fear, needs to be highlighted, I think, so we do not over-enthuse about the 26% forecast rise for 1978/79 in public expenditure, bearing in mind the Secretary of State's expressed views.

3.

On reasonable assumptions about future GDP growth rates etc, you may like to note how public expenditure as a proportion of GDP have moved:

1974/5

18.8%

1975/6

17.6%

1976/7

16.2%

1977/8

17.7%

1978/9

18.4%

(Mr Hull has passed Mr Thompson the detailed workings.)

4.

These figures demonstrate that:

(a)

the large increase for 1978/79 of 26% needs to be adjusted for inflation (making it +19%) and the fact that it is on a

Flow base - it is this year's (1977/8) public expenditure that has not fully met our expectations;

(b) even with a 26% rise next year we are still only back to

approximately 1974/5 in proportionate terms, (18.8%), and the Planning Paper talked of over 20%. I recall Mr Cortazzi once asking me if 25% were practicable in the near future!

13 February 1978

Armanomnin

Adrian Smith

Senior Economic Adviser

SECRET