16.
sibly through the issue of Treasury Bills) and that the
balance should be raised abroad.
33. It is important to realise, however, that underlying this decision to borrow in the current year, is the hope that the gross domestic product will, in 1976, increase by about 5%, in
real terms, and that the annual rate thereafter will be rather nearer 7%, on average (that is, approximately the average rate for the years 1966-1973); for the government was not envisag- ing a need to borrow other than to cover what it regarded as a temporary shortfall, until the growth of the economy and hence the yield of the tax system increased. It is unlikely, however that these future growth rates will be achieved. Although it is claimed that the economy is well-placed to take advantage of an upturn in world trade, by virtue of the fact that wage rates have levelled-off, thereby helping Hong Kong to maintain its competitive edge abroad, it needs to be borne in mind: first, that bank credit is likely to remain relatively tight in the near future; secondly, that the upturn in world demand is, in any event, now likely to be delayed; and thirdly, that, in the wake of the oil crisis, it is unlikely that world demand will increase over the next few years as rapidly as in the past. It is probable that the government is becoming increasingly aware of these factors and of the need, therefore, to revise its growth rate projections downwards. This is of considerable importance because it focusses attention on the fact that
(given the reserves are not further to be drawn down and that
there is now little scope for improving the efficiency of the revenue collection machinery) the government is now having to consider either actually raising taxes and not simply, as in the case of the dividend-withholding charge, introducing new forms of taxation, and/or lengthening the time-scale of its borrowing operations and increasing the size of the public debt. In point of fact, however, the government is unlikely to wish to pursue either option.
34. In the case of taxation, the argument seems to be, on the one hand, that the scope for widoning the tax baso is limited since it is important (if enterprises are not to move abroad) that only income arising from activities within Hong Kong should be taxed and given the need to preserve Hong Kong's free-port status (partly on the ground that indirect taxes would not only distort prices and burden manufacturers with
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