XN000022-1977-04-20 — Page 2

WEDNESDAY, APRIL 20, 1977

PROPOSAL TO LOWER CLA BACK PERCENTAGE

IN SUPPLEMENTARY PERSONAL ALLOWANCE

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THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE TODAY PROPOSED THE LOWERING OF THE CLAWBACK PERCENTAGE IN THE SUPPLEMENTARY PERSONAL ALLOWANCE FROM 20 TO 15 PER CENT, TO GIVE FURTHER RELIEF TO TAXPAYERS.

WINDING UP THE BUDGET DEBATE IN THE LEGISLATIVE COUNCIL, MR. HADDON-CAVE SAID, THE EFFECT OF THIS GESTURE WILL BE TO RAISE THE POINT WHERE THE SUPPLEMENTARY BASIC ALLOWANCE FOR A SINGLE MAN IS ELIMINATED FROM $25,000 TO $29,167 AND FOR A MARRIED MAN FROM $50,000 TO $58,334 THEREBY SHIFTING THE RELATIVE BURDEN OF SALARIES TAX EVEN FURTHER UPWARDS+.

UNDER THIS PROPOSAL, THE TAX LIABILITY OF A MARRIED MAN EARNING $36,000 A YEAR WITH TWO DEPENDENT CHILDREN WILL BE $282 COMPARED WITH $310 WITH A 20 PER CENT CLAWBACK AND $550 AT PRESENT.

THIS WOULD ALSO MEAN A FURTHER COST TO THE REVENUE OF $10 MILLION IN 1977-78 AND $7 MILLION IN 1978-79 MAKING THE TOTAL COST OF THE PROPOSED CONCESSIONS, INCLUDING THE IMPROVED CHILD ALLOWANCE, $74 MILLION OR TEN PER CENT OF ESTIMATED REVENUE FROM SALARIES TAX AND PERSONAL ASSESSMENT IN 1977-78 AND $45 MILLION IN 1978-79.

THE FINANCIAL SECRETARY SAID, JUST IN CASE HONOURABLE MEMBERS CONCLUDE THAT IF A REDUCTION OF FIVE PERCENTAGE POINTS

IN THE CLAWBACK WILL ONLY COST $10 MILLION, IT IS NOT WORTH BOTHERING WITH A CLAWBACK AT ALL, LET ME POINT OUT THAT A CLAWBACK OF 10 PER CENT WOULD COST AN ADDITIONAL $37 MILLION AND NO CLAWBACK AT ALL WOULD COST AN ADDITIONAL $117 MILLION.

*THUS THE COST OF NEW BASIC ALLOWANCES OF $2,500 AND $5,000, WITHOUT A CLAWBACK WOULD BE $158 MILLION IN 1977-78 AND $91 MILLION IN 1978-79. WHEN ACCOUNT IS ALSO TAKEN OF THE IMPROVED CHILD ALLOWANCES THE COST WOULD BECOME $181 MILLION OR 25 PER CENT OF THE ESTIMATED REVENUE FROM SALARIES TAX AND PERSONAL ASSESSMENT IN 1977-78 AND $105 MILLION IN 1978-79.

+THE REASON FOR THE SHARPLY INCREASING COST OF A LOWER AND LOWER CLAWBACK IS, OF COURSE, THAT THE EFFECTIVE RATE OF TAX IS REDUCED FURTHER AND FURTHER UP THE SCALE- AND THIS IS CLEARLY UNACCEPTABLE ON FISCAL GROUNDS AND UNNECESSARY ON EQUITY GROUNDS, + SAID MR. HADDON-CAVE.

ON THE SUGGESTION BY DR. THE HON. S.Y. CHUNG, THE HON. G.W. LEE AND THE HON, WONG LAM FOR AN INCREASE IN THE SUPPLEMENTARY ALLOWANCES COUPLED POSSIBLY WITH A HIGHER CLAWBACK FACTOR, THE FINANCIAL SECRETARY SAID, THEY HAVE OVERLOCKED THE EFFECT OF MY PROPOSALS ON THE NUMEER IN THE TAX NET AND HAVE PROPOSED A MODIFICATION WHICH WOULD INCREASE THE NUMBER DROPPED OUT.

FOR EXA FIT