43.
So much for expenditure.
On the revenue side, I would
like to begin by saying a few words about the relationship
between direct and indirect taxes. In 1982-83 we saw direct
taxes contributing 69% of the total tax yield. This fell to 60% in 1983-84, but has now started to edge upwards again (12).
There is no immutable or clearly correct ratio between the yields from direct and indirect taxes; but for the longer term I do not believe that a higher relative contribution from direct taxation is desirable for Hong Kong. If our revenue is overly dependent on narrowly based direct taxes, then it is all too easy in difficult times to be forced into a position where one has to increase those direct taxes significantly in order to provide for committed recurrent expenditure.
44.
As both the economy and government services grow, the stability of public finances can best be assured by endeavouring to develop a broadly based tax system, because such a system is
more resilient. I am not suggesting a case for higher overall taxation: simply a way of spreading the tax burden more widely
across our community.
45.
We must be practical in
in our
our approach. We do not want complex new taxes. Neither do we want taxes that are costly to administer or damage incentive. We have done very well without
them.
46.
But one way of achieving a broader tax base is through widening the scope of indirect taxes, which we currently limit to a relatively small number of specific items. Members of this Council may recollect that my predecessor said last year that a broadly based indirect tax was a theoretical possibility (13). Of course, there are other options for broadening the tax base; for example, an eventual widening of the salaries tax net.
(12)
See Appendix A (2).
(13)
1986 Budget Speech, paragraph 18.
/47. If
14
I