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Following is a transcript of a media session by the acting Chief Executive, Mr Donald Tsang, after he has completed the last round of consultation meetings with Members-elect of the First SAR Legislative Council on the expenditure aspects of the 1999-2000 Budget this (Wednesday) morning:

Mr Tsang: I have met Members-elect of the Legislative Council in seven groups over the last two weeks. We have very serious exchanges on how I should prepare my next year's Budget. We are talking largely on the expenditure side of the Budget. The revenue side would not be for discussion until this autumn. I explained to them how the growth of the economy has fared over the last few years, and how it was likely to fare in the next few years. The trend growth rate for the past few years was five per cent, but because of the economic downturn, and because of the (economic) performance, for instance, in the first quarter of this year, I believed it would be unlikely that we would be able to sustain five per cent growth in real terms in the coming few years. For that reason, this would grossly limit the new resources available for new expenditure in the coming year. We also discussed how we dispersed Government expenditure in the last few years. Some Members-elect noted the phenomenal rise in the share of expenditure devoted to medical and health services, and particularly for welfare. There was some concern about that. I want to emphasise that the Budget is an instrument for economic growth, an instrument to address social problems. For that reason, I would have to balance the pleas for tax reduction and greater expenditure on the one hand, which would relieve the pains of the economic adjustment that we all face at the moment, with another thing, which is the international expectation, the investors' sentiments. What they want to see is that Hong Kong continues its prudent financial management principle so that they continue to invest in Hong Kong, that would in turn increase local liquidity and create more jobs. So the Budgetary exercise would be a very delicate one, balancing these two containing forces.

Reporter: What trend growth rate do you see in future and what kind of Budget cut are you envisioning caused by the decrease?

Mr Tsang: Let me put it this way. There is no question of Budget cut. Don't use the word 'cut' at the moment. We are talking how much we should grow, it is not a question of cutting expenditure. It is how much more expenditure we should allow. Should it be five per cent or should it be less than five per cent? That is a subject we are already discussing.

Reporter: So what trend growth rate do you see? As you said you did not expect five per cent in future.

Mr Tsang: The trend growth rate will be announced as I said in the course of this year. I would do so in my next economic forecast.

Reporter: Mr Arculli strongly urged to delay land sales, do you agree with that?

Mr Tsang: I understand that is Mr Arculli's intention.

Reporter: How high will the interest rate have to go before...?

Mr Tsang: Well, can you tell when would the Japanese crises likely to end? Then I would certainly be able to tell you that. The problem is that interest rate is a matter for the market to decide, and it is very much a matter of what is happening around us.

Reporter: Mr Tsang, you said yesterday you would not completely breach your fiscal policy. Would you somewhat breach your fiscal policy?

Mr Tsang: Well, fiscal policy is an important underlying principle. I am sorry that I have used the adverb 'completely'. I would be very reluctant to breach any of my fundamental principle. It is important that we must reassure international investment community that fiscal prudence is something we would adhere to strictly.

Reporter: ... banks are setting a 70 per cent ceiling in mortgage.... would the Government consider a proposal that the (mortgage) guidelines be raised?

Mr Tsang: The mortgage guidelines which the Monetary Authority gives to banks generally is not to be changed. We are not going to change that.

Reporter: Are you heartened by the stretching of Yen today? Because yesterday you expressed great concern about the Japanese...

Mr Tsang: I am used to volatilities these days. I have also learned not to get overjoy by sudden admiration of the market. But I do wish to say it is important, very important, to whole of Asia, if not the world for that matter, for the Yen Dollar exchange rate to stabilise.

Acting Chief Executive's transcript (chinese part)

End/Wednesday, June 17, 1998

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