A WARNING that increased public spending could start to put the squeeze on the private sector and force up taxes has been issued by Hang Seng Bank. The bank's economists said there were justifiable concerns that increased spending by the Government could put the territory on the same path to fiscal ruin which so many other countries had trod. But the bank added that the territory's reserves were strong, and any spending on infrastructure and training was likely to enhance the growth potential of the economy. It said government spending had traditionally represented a relatively small proportion of gross national product (GNP). Government spending in Hongkong as a percentage of GNP has never topped 20 per cent, and last year was running at less than 17 per cent. But this could rise to 19.4 per cent in 1995-96 before coming back down to 18.7 per cent the following year, the bank predicted. This ratio could change with increased prosperity as a more vocal electorate demanded a higher level of government services. As well as squeezing the economy by making capital harder to raise in the private sector, the increased spending could also lead to larger budget deficits, which would have to be financed by higher rates of tax. ''A delicate balance must therefore be struck between the benefits and costs of higher levels of government spending,'' the bank said.
