TNAG-2470-FCO40-3594-Budget-of-Hong-Kong-1992 — Page 50

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5.

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Expenditure fell considerably below budget estimates and the

outturn is estimated at 14.9 per cent GDP or 1.2 per cent lower

than budget. Although we do

do not have the detailed figures

expenditure cutbacks were mostly on the capital programme (PADS

delays) accounting for HK$ 5.6bn of HK$ 8.0bn underspend. In

effect the fiscal expansion related to PADS has been put back by

one financial year.

Reserves

6.

Highlighting the 1997 level of fiscal reserves seems an

unnecessary assurance (Mr Broadbent's minute 5 March refers) even though under present assumptions (5 per cent GDP growth) it

seems plausible. The level of HK$ 71.6bn is comfortably in the

middle of the range of estimates that we made last year (HK$ 50bn

to HK$ 90bn) corresponding to a range of assumptions for GDP,

revenue and expenditure growth. We need to see the annex to make

a full evaluation of the outlook to 1997.

CODE 18-77

Lu Ping's comments on the budget (telno 688)

A very unhelpful statement.

7.

There will inevitably be a

modest increase in the tax burden to finance a expanded capital

programme, not least to counteract the inflationary impact of the increased expenditure. But this increase in expenditure is

investment for the future, and it is the SAR which will benefit.

It is important that China is supportive of the necessary fiscal

measures to enable this investment to be made. Without an

increase in taxation the SAR would inherit government debt and a higher level of inflation. As the FS pointed out in the budget

statement, government's Own saving (recurrent revenue less recurrent expenditure) will finance at least half of projected

capital expenditure.

8.

To allege a change of budgetary policy is disingenuous in the

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