23.
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Against this background, I cannot accept that my proposals are unreasonable. It seems to me that some of the criticism is the result of a misconception that salaries tax allowances have not kept pace with inflation. This assertion does not stand up to serious scrutiny. The simple fact is that since 1980, personal allowances have remained in step with inflation.
24.
In addition to these increases in personal allowances, we have also carried out periodic reviews of the tax banding system. Five such reviews have been conducted. since 1980. The effect has been that taxpayers have benefited from a reduction in their effective tax rates.
25.
Several alternative packages have been proposed and they have attracted some support. This is not surprising as most people find the thought of paying less tax perfectly agreeable. But there is little logic behind these alternative proposals, and they are all very expensive. Let me spell out what I mean.
Members of the CRC have suggested a 22% increase in personal allowances and a widening of the tax bands. Over the next five years, these proposals would cost an additional $18 billion.
Members of the UDHK have now modified their original proposals, which would have cost an additional $31 billion over the next five
years.
26. In conclusion, I believe that my proposals will help to maintain the real value of the disposable income of the middle and lower income groups. They will not add to inflation. More generous alternatives, which do not have full regard to the long- term fiscal or economic consequences, are not in the interests of any section of our community.
27.
I am pleased that so many Members have supported a modest increase in profits tax. There is a broad consensus that profits as well as salaries should contribute to the public revenue. Having said this, I understand the concern of those who fear that further increases in profits tax would blunt our competitive edge as a business and financial centre. Let me restate my position on profits tax. The present proposal should not be regarded as the start of a trend or a slippery slope towards heavier taxes on profits.
28. Members have also focused attention on my proposal to increase rates by half of one percentage point. This modest increase still leaves rates near their historical low. Furthermore, rates have declined as a proportion of the total cost of accommodation to less than 4%. So the real impact of the proposed increase will not be severe. And because rates broadly reflect ratepayers' ability to pay, the middle and lower income groups will be the least affected.
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