TNAG-1050-FCO40-1300-Economic-policy-in-Hong-Kong-1983 — Page 17

ECONOMIC POLICY IN HONG KONG

1.

Hong Kong's economy is widely regarded as the paradigm of a laissez-faire system, and the rhetoric if not always the substance of HK Government policy reflects this. There is complete freedom of trade and capital movements; there are no protective import duties; low personal and company taxation (income tax limited to 15%); public social security provision is limited; and there is relatively little regulation of labour conditions, business activity or financial institutions. However, increasing prosperity and Hong Kong's rapid development as financial centre have increased the level of Government intervention in recent years. It has undertaken a massive housing programme in producing over 35,000 flats in 1980/81(cf 27,300 units started by local authorities in the UK in 1980); it is the main source of development of land; has undertaken a rapid expansion of public education and social services; and is responsible, either directly or indirectly, for several major public utility and transport projects (eg the Mass Transit system opened last year).

11

2. The main instrument of macro-economic policy is a fairly active fiscal policy which has the object of achieving internal and external balance while preserving the capacity of the economy to adapt to the changing world economic environment through the automatic adjustment mechanism" of a flexible domestic cost/price structure. In practice there has been a substantial budget surplus (greater than originally estimated) in each of the last four years

amounting to $HK9.3bn (£800m, or 32% of revenue and 10% of GDP). In recent years, the Government has aimed for a trend increase in expenditure of 10% pa, which has implied some increase in the proportion of GDP accounted for by the public sector. The present Financial Secretary has suggested that this proportion should not go much beyond the present level of 23%.