XN000022-1981-04-09 — Page 6

5

→THE SHARE OF THE TOTAL HONG KONG DOLLAR BASE HELD BY BANKS HAS DECREASED FROM 85 PER CENT OF TOTAL DEPOSITS OF $70 BILL ION AT THE END OF DECEMBER 1978 TO 66 PER CENT OF $139 BILLION AT THE END OF FEBRUARY 1981.+

THE GROWTH IN THE TOTAL DEPOSIT BASE SINCE THE END OF DECEMBER 1978, SIR PHILIP SAID, HAS LARGELY BEEN CAUSED BY AN INCREASE IN LOANS AND ADVANCES IN HONG KONG OVER THE SAME PERIOD OF $78 BILLION, OR 138 PER CENT.

+THE DISPROPORTIONATE GROWTH IN DEPOSITS WITH DEPOSIT-TAKING COMPANIES IS LARGELY A RESPONSE TO THE HIGHER NOMINAL RATES OF INTEREST OFFERED BY THEM AND THE INCREASING INTEREST RATE- SENSITIVITY OF DEPOSITORS IN A PERIOD OF DOUBLE DIGIT INFLATION, COMPARED WITH THE MAXIMUM RATES OFFERED BY MEMBERS OF THE HONG KONG ASSOCIATION OF BANKS.

+BANKS REACTED BY USING SUBSIDIARY OR ASSOCIATED DEPOSIT-TAKING COMPANIES TO BID FOR DEPOSITS OUTSIDE THE INTEREST RATE AGREEMENT, AND SUCCESSFULLY, FOR THE 94 COMPANIES CONCERNED HAVE ABOUT 75 PER CENT OF ALL DEPOSITS WITH DEPOSIT-TAKING COMPANIES AND NEARLY 70 PER CENT OF THESE DEPOSITS ARE ON-LENT TO THE PARENT BANKS (BUT AT A HIGHER COST TO THE BANKS AND PROBABLY TO BORROWERS TOO).

+ THE INTEREST RATE AGREEMENT IS THE KEY TO THE DISTRIBUTION CF DEPOSITS BETWEEN DEPOSIT-TAKING COMPANIES AND BANKS. SO LONG AS THE MAINTENANCE OF THAT AGREEMENT REMAINS AN ESSENTIAL ELEMENT IN THE GOVERNMENT'S MONETARY POLICY, THE GOVERNMENT'S AIM SHOULD EE TO REINFORCE THE AGREEMENT BY PREVENTING ANY FURTHER RELATIVE DIMINUTION OF THE BANKS' DEPOSIT BASE AND, INDEED, BY ROLLING BACK SOME OF THE RECENT SHIFT OF FUNDS, SIR PHILIP ADDED.

...

SEPARATE ASSESSMENT RULED OUT ****

SEPARATE ASSESSMENT OF A WIFE'S INCOME WOULD INTRODUCE A QUITE INAPPROPRIATE COMPLEXITY INTO OUR SYSTEM OF PERSONAL TAXATION WHICH RESTS LIGHTLY ON THE MIDDLE INCOME GROUP, THE FINANCIAL SECRETARY, THE. HON SIR PHILIP HADDON-CAVE, SAID TODAY (THURSDAY).

AND, GIVEN THE ACCEPTANCE OF THE FAMILY CONCEPT IN OUR SYSTEM, ANY REDUCTION OF LIABILITY THROUGH THE ADOPTION OF SEPARATE ASSESSMENT WOULD ALSO GIVE RISE TO INEQUITY.

IN HIS SPEECH WINDING UP THE BUDGET DEBATE IN THE LEGISLATIVE COUNCIL, SIR PHILIP SAID THE SYSTEM OF AGGREGATION OF THE INCOMES OF MARRIED COUPLES PROVIDED FOR IN THE INLAND REVENUE ORDINANCE REMAINS OUR PREFERRED ARRANGEMENT GIVEN THE ESSENTIAL SIMPLICITY AND HIGH THRESHOLDS OF OUR PERSONAL TAX SYSTEM.

+ IT INVOLVES TREATING THE FAMILY AS A CONVENIENT TAX UNIT BEARING IN MIND THAT THE TOTAL INCOME OF THE UNIT IS NORMALLY EMPLOYED TO THE BENEFIT OF THE FAMILY, HE SAID.

SIR PHILIP POINTED OUT THAT THOSE WHO PLEADED FOR SEPARATE ASSESSMENTS WERE PERHAPS UNAWARE OF THE LIMITED VALUE OF SUCH AN APPROACH.

/+IT":