Budget thrift raises eyebrows

PUBLISHED : Friday, 03 March, 1995, 12:00am
UPDATED : Friday, 03 March, 1995, 12:00am

THERE were some sceptical reactions to Sir Hamish Macleod's last Budget yesterday, not least from China Foreign Ministry spokesman Shen Guofeng.

His implication that the Financial Secretary's proposals were profligate and represented wild spending is akin to suggesting that a maiden aunt who has sipped a glass of sherry is painting the town red.

Sir Hamish Macleod will be mildly amused at the idea his forecast of a $2.6 billion deficit - or a nearly invisible 0.2 per cent of gross domestic product - will be seen as an act of recklessness.

Most of the criticism he faces is that he has clutched his purse too tightly to his chest.

Jim Walker, an economist with brokers Credit Lyonnais, said: 'In any other country in the world, taxpayers would be up in arms about the $151 billion being promised to the Beijing-controlled Special Administrative Region government.' The chances of this modest Budget overshoot actually occurring are doubtful.

Already the deficit has been revised down from the more substantial $16 billion put forward in last year's Budget, and if Sir Hamish's views on gross domestic product growth are right, the Budget may end up balanced again.' Indeed, it is hardly correct to suggest that there will be any deficit at all, even if Sir Hamish's figures are spot on.

For what is not taken into account is the SAR government suspense account, which gets a slice of the Government's revenue from land premiums.

This is not included in the Government's own revenue figures, but it is still Hong Kong's money and will be available for the SAR, so in reality there will still be a surplus in the coming year.

Sir Hamish's view that GDP growth this year will be steady at 5.5 per cent is being questioned in more than one analyst's office.

'If you take into account some of the forecasts of reduced activity in certain areas, then there is no way the assumptions on the GDP figure can remain unchanged,' Mr Walker said.

His own prediction is for a slide in GDP growth to 4.6 this year and 4.2 per cent next - which is not the most pessimistic forecast in town.

Like many others, Mr Walker believes not enough has been made of the effects of the slowing Chinese economy and its knock-on reduction in local inflation.

If Hong Kong is slowing down to the point where Sir Hamish's inflation forecast of 8.5 per cent begins to look too high, the benign effects could be countered by the impact it will have on economic activity.

For a fall in inflation will bring interest rates firmly into the positive band, with all that means for slowing overall growth, capital creation and lower confidence.

There are internal factors at work which also raise questions, and eyebrows, over the Government's GDP forecasts.

Capital expenditures projected in the Budget were 19 per cent below the figures in last year's presentation.

Public sector investment, widely expected to rise by at least 30 per cent this year, may turn out to be well below that level, some sources believe.

What was not in the Budget was the level of GDP activity expected to be generated by the airport.

Perhaps the effect on underlying growth in Hong Kong of stripping that out might have been a little depressing for the watching Chinese officials.