105.
an
All this is evidence of dynamism and change. In such environment, I remain aware of the need for continuing vigilance regarding the growth in public sector expenditure. Experience elsewhere shows that an expanding public sector in relation to the economy as a whole is often a major factor in dampening long-term economic prospects. This should not be allowed to happen in Hong Kong.
106.
I recognise that my overall budgetary package could well provide a stimulus to the economy in 1988, but, I believe that the effect will be tolerable. I have no doubt, however, that given that the economy will still be operating at near full capacity, that any further stimulus would be inappropriate and could well result
result in higher inflation rather than greater real growth.
107.
I am particularly conscious that the expenditure proposals I have put before you today imply real growth in our spending in 1988-89 higher than my forecast for economic growth. Furthermore, the indications are that the size of the Civil Service is set to increase, for at least the next few years, at a rate faster than that of Hong Kong's labour force.
108.
It is inevitable, however, that in some years our spending will be above the trend. Continuing care is needed to ensure that in the longer term we move back to our planning criteria. If we fail in this regard, we may find ourselves locked into high expenditure growth rates that cannot be reduced if and when circumstances turn against us. We could then find ourselves in a position of being forced to increase taxation, and, through that increase, erode significantly our competitive edge bearing in mind the move towards lower tax rates worldwide.
/109. But
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