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Mr Macleod jokingly said that the economic growth this year was expected to be just 3.5 per cent. He was sure that the Government would be criticised later on. However, he would still follow the old budgetting method as it would make planning more effective. In fact, once certain items of recurrent expenditure had been introduced, they could not easily be removed. The Government reviewed the trend of the growth rate on a yearly basis, but good reasons would be required to change the present 3.3 per cent.
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Mr Macleod said that with the trend of the growth rate, the Government would still be controlling expenditure effectively. Although some services such as education, medical and other expenses, and civil service salaries however unacceptable to the public would unavoidably be increased gradually, the Government was not spending in an unrestrained manner. Not all requests for expenditure increases were entertained this had never happened in the history of HK. Therefore, it would be simplistic to say that the Government's financial policy was raising revenue to meet expenditure. When preparing the Budget, the Government did start with expenditure, but this would not proceed unless it was sure that there would be sufficient funds for the item. On the contrary, measuring expenditure against revenue would be even more unworkable. This was because the Government would be spending what it had, and there would never be a surplus.
The question of the sources of taxes, which affected Government revenue, had been very controversial in recent years. Mr Macleod admitted that both relying on direct taxes or indirect taxes had their advantages and disadvantages. He said that although indirect taxes would be a scable source of income, more people would be affected and inflation would be fualled. On the other hand, direct taxes would make it easier for the Government to raise revenue, but the revenue would be subject to fluctuations and it would affect the enthusiasm of foreign companies in investing in HK. It was therefore difficult to choose
between the two.
Mr Macleod said that HK did not have a so-called taxation policy, although it did have a taxation strategy, which was to maintain a simple tax structura.
The Government set up two working groups under the Taxation Review Committee in 1966 and 1976 to review our taxation system and to map out taxation principles and strategies for the territory. But no such review had been conducted by the Government in the past 15 years. Mr Macleod said that it was not needed for the time being, adding that an advisory committee on taxation had been formed to give Government advice. The only thing was that this advisory committee did not include representatives of political groups or people at the
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