RESTRICTED
4
which reflect considerations of short term demand management.
Table 2:
(HK$ bn)
1987-88
1988-89
Budget Revised Old Taxes New Taxes
Expenditure
48506
49165
Revenue
50905
56738
55540
62880
55540
61070
Change due to:
Personal tax
na
na
na
1340
Corporate tax
na
na
na
370
Duties/charges
na
na
na
390
Other
na
na
na
490
Surplus
2399
7573
7340
5530
Real GDP growth
6.2%
13.6%
5.0%
5.0%
13. It is a moot point whether this should be regarded as
expansionary. What the proposals do mean is that less money will be taken out of the economy than if the old tax regime had been
maintained unaltered. But it is not clear that policy has been
loosened in any important sense.
14. First, there is a large element of restoring the fiscal stance
envisaged last year. The rapid growth of the economy with its impact on inflation and real incomes has itself increased the burden of taxation since the 1988 budget. Increasing personal allowances
this year accounts for the inflationary element; but real earnings.
are left out of this calculation. Thus, while the marginal tax -
rates will in many cases fall as a result of the budget it is not clear what will happen to the real tax burdens as compared with this
time last year.
15. The impact of the 5% growth assumption is also crucial To see this compare the projected surplus for 1987-88 (based on 6.2% growth) with the revised figure, which is more than three times greater. It would be interesting to see the projections for 1988-89
with the new taxes and 13.5% growth. In other words, there are, as
in most countries, "fiscal stabilizers' inherent in the budget
structure. As an automatic tool of counter-cyclical policy this
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