Mr Male
Mr Cortazzi
CONFIDENTIAL
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PS/Lord Goronwy Roberts
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GOVERNOR OF HONG KONG'S VISIT: PROSPECTS FOR THE 1977/78 BUDGET
1.
Since I completed my submission of 3 December the Governor and the Financial Secretary have visited the Foreign Office and I have been able to glean some further information on
Mr Haddon-Cave's intentions as far as the budget is concerned.
2. In general terms Mr Haddon-Cave will maintain that the figures for revenues and expenditure are not yet sufficiently complete for him to decide whether the funds available will be sufficient to fund the Government's spending or not. That is to say whether it will be necessary for him to propose some increase in taxation. On the more general point of whether he should revise completely the fiscal strategy in Hong Kong, he will maintain that at present he is constrained by the state of the law and by the fact that the Inland Revenue Ordinance Review Committee has not yet submitted its report. (It was due this month, but I understand there was some dissent within the Committee which may cause a delay.) This report is expected in the early spring of 1977. I attach a copy of the terms of reference of the Committee. I believe that Mr Haddon-Cave will maintain that when the Committee has reported the Hong Kong Government will then be able to consider such measures as aggregation of all sources of income and a review of, for example, the present system whereby income or revenue from outside Hong Kong is not subject to any taxation. I believe he will maintain that it is as yet too early to consider the introduction of progressivity in income tax other than that which presently exists, whereby a progressive element is built into all incomes up to HK$110,000 a year (approximately £13,750 per annum). (But I can still see no reason why the present salaries tax system should not incorporate at least two levels, say 15% and 30% for a top tranche.)
CONFIDENTIAL