XN000022-1977-04-20 — Page 3

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WEDNESDAY, APRIL 20,

+FOR EXAMPLE, IF THE SUPPLEMENTARY ALLOWANCES WERE INCREASED TO $3,750 AND $7,500 FOR SINGLE AND MARRIED TAXPAYERS RESPECTIVELY, A FURTHER 20,000 TAXPAYERS WOULD BE REMOVED FROM THE TAX NET AND THE ADDITIONAL COST TO THE REVENUE, INCLUDING THE EFFECT ON THE TAX LIABILITY OF THOSE LEFT IN, WOULD BE $55 MILLION IN 1977-78 AND 533 MILLION IN 1978-79 OVER AND ABOVE THE COST OF THE PROPOSED SUPPLEMENTARY ALLOWANCES OF $2,500 AND $5,000, NAMELY, OF 341 MILLION AND $24 MILLION IN 1977-78 AND 1978-79 RESPECTIVELY.

+ON THE OTHER HAND, MR. HADDON-CAVE SAID, +MR. Q.W. LEE AND DR. CHUNG PROPOSED A HIGHER CLAWBACK WHICH WOULD DIMINISH THE BENEFIT TO THOSE WHOSE SALARIES EXCEED THE SUPPLEMENT.+

+ IT IS TRUE THAT THE APPLICATION OF A HIGHER CLAWBACK OF, SAY 25 PER CENT WOULD REDUCE THE ADDITIONAL COST OF THESE HIGHER SUPPLEMENTARY ALLOWANCES BY ABOUT 39 - 10 MILLION ONLY IN 1977-78 AND $6 - 7 MILLION ONLY IN 1978-79, BUT MY MAIN OBJECTION TO HIGHER SUPPLEMENTARY ALLOWANCES WOULD REMAIN, NAMELY, THAT THE NUMBER OF TAXPAYERS AND POTENTIAL TAXPAYERS DROPPED OUT WOULD BE TOO MANY, HE SAID. +30 I CANNOT AGREE TO A FURTHER REDUCTION IN THE NUMBER OF TAXPAYERS AND ADMINISTRATIVE CONSIDERATIONS DO NOT NECESSITATE THIS.+

IN REPLY TO DR. CHUNG'S REQUEST FOR A CLARIFICATION OF THE SHARP INCREASE IN RATEABLE VALUES, THE FINANCIAL SECRETARY SAID THE REASON WAS QUITE CLEAR. IT WAS THE VERY SHARP INCREASE IN OPEN MARKET RENTS OVER THE FIRST HALF OF THIS DECADE, AND THIS WAS EXPLAINED BY THE COMMISSIONER OF RATING AND VALUATION LAST NOVEMBER PRIOR TO THE ISSUE OF NOTICES OF RATEABLE VALUES, WHEN THE COMMISSIONER SPOKE TO THE HONG KONG MANAGEMENT ASSOCIATION.

ANSWERING REV. THE HON. MCGOVERN'S REMARKS THAT HONG KONG'S RENT CONTROL LEGISLATION HAD AN INFLATIONARY EFFECT, MR. HADDON-CAVE SAID, WHILE IT IS TRUE THAT RENT CONTROLS ON POST-WAR PREMISES PROVIDE FOR A RENT INCREASE OF UP TO 21 PER CENT EVERY TWO YEARS, THIS IS A MAXIMUM AND NO INCREASE IS PERMITTED ABOVE THE FAIR MARKET RENT AS ESTIMATED BY THE COMMISSIONER OF RATING AND VALUATION.

+THERE IS, THEREFORE, NO QUESTION OF RENTS AUTOMATICALLY INCREASING BY 100 PER CENT IN SEVEN-AND-A-HALF YEARS OR 200 PER CENT IN LESS THAN 12 YEARS.

+BECAUSE OF THE WAY OUR RENT CONTROLS OPERATE THROUGH THE FACTOR SYSTEM, THE ACTUAL AVERAGE INCREASE CERTIFIED BY THE COMMISSIONER IN 1974 WAS 16.35 PER CENT AND IN 1976 IT WAS 15.84 PER CENT THAT IS TO SAY, A COMPOUND RATE OVER FOUR YEARS OF ONLY 7.75 PER CENT PER ANNUM. IT SHOULD BE REMEMBERED THAT RENTS, FOR THOSE EFFECTIVELY CONTROLLED, EVEN AFTER THE INCREASE DUE LAST YEAR, ARE ON AVERAGE STILL ONLY ABOUT 65-70 PER CENT OF OPEN MARKET RENTS.

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