CONFIDENTIAL
132372
MDLIAN 9760
9. FURTHERMORE, THERE IS A RISK THAT THE PRESSURE ON THE BUDGET POSITION COULD BE EVEN LARGER THAN ENVISAGED IN THE MEDIUM-RANGE FORECAST. APART FROM THE POSSIBILITY OF COST OVER-RUNS ON THE AIRPORT PROJECTS AS GLOBAL ECONOMIC CONDITIONS IMPROVE, RISING AFFLUENCE LEADING TO INCREASED DEMAND FOR SOCIAL SERVICES AND PUBLIC INFRASTRUCTURE WILL ALSO BRING SPENDING PRESSURES. IN LIGHT OF THIS, THE MISSION SUGGESTS THAT THE MINIMUM AIM OF FISCAL POLICY SHOULD BE TO AVOID A SIGNIFICANT NARROWING OF THE BUDGETARY SURPLUS SO LONG AS THE ECONOMY CONTINUES TO OPERATE AT FULL CAPACITY. IN THIS CONTEXT, THE MISSION UNDERSCORES THE NEED TO ECONOMISE ON OPERATIONAL EXPENDITURES, AND TO SMOOTH, TO THE EXTENT POSSIBLE, CAPITAL EXPENDITURES.
10.
THE MISSION SUGGESTS A SHOPPING LIST OF POSSIBLE TAXATION MEASURES TO RAISE REVENUE AND HENCE INCREASE FISCAL SURPLUSES.
11.
OUR FINANCE BRANCH REPRESENTATIVES NOTED THAT MOST OF THE SUGGESTED TAX MEASURES WERE UNLIKELY TO BE POLITICALLY FEASIBLE. THEY ALSO NOTED THAT THE MAGNITUDE OF THE SHIFT IN FISCAL BALANCE IN THE SHORT TERM WAS LIKELY TO BE OVERSTATED AS THERE WAS AN IN- BUILT BIAS TOWARDS UNDERSPENDING IN A SYSTEM WITH RIGOROUS EXPENDITURE CONTROL, AND ACTUAL REVENUE WOULD USUALLY EXCEED FORECASTS AT TIMES OF HIGH ECONOMIC GROWTH.
BALANCE OF PAYMENTS STATISTICS
12.
THE MISSION MAINTAINS THAT MORE COMPLETE DATA ON THE BALANCE OF PAYMENTS WOULD ENHANCE THE ANALYSIS OF HONG KONG'S ECONOMY, AND WELCOMES THE DECISION TO PROCEED WITH PREPARATORY WORK ON COMPILING DATA ON EXTERNAL INVESTMENT INCOME FLOWS.
CONCLUSION
13. THIS HAS BEEN A USEFUL EXERCISE, CONFIRMING THE VALIDITY OF OUR POLICY APPROACH ON MOST ASPECTS OF THE ECONOMIC ISSUES AND MAKING USEFUL SUGGESTIONS ON OTHERS. THE UKDEL IMF/IBRD HAS BRIEFED THE CHINESE EXECUTIVE DIRECTOR IN THE IMF ON THE OUTCOME OF THE CONSULTATIONS.
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