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Hong Kong shows how to reduce budget deficits

June 6, 2005

A few days ago, Hong Kong published first quarter GDP growth , with growth being a impressive 6% (although it is somewhat less impressive if one adjusts for a worsening terms of trade) higher than in just about all other rich countries something which might be related to Hong Kong being the freest economy in the world.

Anyway, when examining the details, one finds one very interesting fact. Growth was (statistically) driven by an increase in both private consumption and fixed nvestments and a rising trade surplus while being held back by reduced inventories and falling government consumption . In nominal terms, GDP increased 4% but government consumption was reduced by some 6.3%. Hong Kong has managed to do this even though they had a relatively low level of government consumption (Which of course do not include social security, welfare, farm subsidies and other government transfer payments) to begin with at roughly 11% of GDP, compared to nearly 20% in America and nearly 30% in Sweden. S

o, if Bush were serious about wanting to reduce the budget deficit then he should look to Hong Kong for tips on how to do it. Imagine the federal budget expenditures actually being reduced like they do now in Hong Kong!

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