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7. AM CONTENT WITH THE ADVICE THAT TO MAXIMISE THE IMPACT OF
THE OVERALL PACKAGE, INTEREST TAX ON HONG KONG DOLLAR DEPOSITS
SHOULD BE WITHDRAWN FORTHWITH. THE PRESENTLY PREFERRED METHOD
(SUBJECT TO FURTHER CONSULTATION) WOULD BE TO ZERO RATE PRO TEM
PENDING CONSIDERATION OF LATER LEGISLATION TO MINIMISE THE
POSSIBLE EFFECTS ON REVENUE FROM PROFITS TAX. THIS MIGHT WELL
AWA MT NEXT YEAR'S BUDGET PROPOSALS.
8. THE LOSS OF REVENUE IN THIS FENANC VAL YEAR RESULTING FROM
THE INTEREST TAX WITHDRAWAL ONLY (THE EFFECTS ON PROFITS TAX
COULD NOT BE FELT UNTIL THE NEXT FISCAL YEAR) WILL BE OF THE
ORDER OF DOLLARS 250 MILLION. THIS LOSS IS BEING FACED BECAUSE
OF THE NEED TO PROTECT THE EXCHANGE RATE. IT SEEMS THEREFORE
AN APPROPRIATE CHARGE ON THE EXCHANGE FUND. UNTIL THE ACCUMULATED
F&SCAL SURPLUS HAS BEEN USED UP THE EFFECT WILL ONLY BE OF A
BOOKKEEPING NATURE, .E. THE GENERAL REVENUE ACCOUNT WILL BE CREDITED (THUS REDUCING WHAT WOULD OTHERWISE BE A LARGER DEFICIT) BUT THE GENERAL REVENUE ASSET WILL BE AN ADDITIONAL EXCHANGE FUND
DEBT CERTIFICATE FOR THE AMOUNT TRANSFERRED. WE DO NOT WANT TO BE
THOUGHT THAT AT THIS JUNCTURE EXPECIALLY THERE HAS ANY LOOSENING
OF OUR THIGHT BUDGETARY CONTROLS LEADING TO A LARGER DEFICIT THAN FORECAST.
9. WE SHALL THEREFORE BE TELEXING THE SECRETARY OF STATE LATER
FOR HIS APPROVAL TO MAKE A TRANSFER TO GENERAL REVENUE FROM
THE FUND.
HADDON-CAVE
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