XN000022-1983-11-09 — Page 3

ぎょ

WEDNESDAY, NOVEMBER 9, 1983

2

SIR JOHN SAID IT IS CONCEIVABLE IN CERTAIN CIRCUMSTANCES IN THE FUTURE THAT THE FIXED EXCHANGE FUND RATE MAY BE IMPROVED OR BE LINKED TO ANOTHER CRITERION, FOR EXAMPLE A BASKET OF CURRENCIES.

+I DO NOT, HOWEVER, BELIEVE THAT ANY CHANGE AT ALL WILL BE APPROPRIATE FOR A LONG TIME AHEAD, HE SAID, STRESSING THAT THERE MUST BE STABILITY.

ELABORATING, THE FINANCIAL SECRETARY SAID THAT EVEN AN IMPROVEMENT MUST MILITATE AGAINST STABILITY, FOR THERE WILL BE THOSE WHO SAY WHAT GOES UP MUST COME DOWN,

HE ADDED: +1 WILL NOT THEREFORE EASILY BE PERSUADED TO CHANGE THE PRESENT LINK, AND I HOPE THAT CONFIDENCE IN OUR CURRENCY ON THE NEW BASIS WILL BE ENCOURAGED BY THIS FIRM ASSURANCE.+

REFERRING TO THE INLAND REVENUE (AMENDMENT) (NO. 4) BILL, SIR JOHN EXPLAINED THAT ITS PROVISIONS WERE BROUGHT INTO FORCÉ BY A PUBLIC REVENUE PROTECTION ORDER SIGNED BY THE GOVERNOR LAST MONTH, AND IT WAS NECESSARY FOR THE BILL TO BE ENACTED TO REPLACE THAT ORDER.

HE RECALLED THAT THE DEPRECIATION OF THE HONG KONG CURRENCY IN THE RECENT PAST HAD MADE IT NECESSARY FOR THE GOVERNMENT TO ANNOUNCE TWO COUNTER MEASURES.

ONE WAS TO REQUIRE THE NOTE-ISSUING BANKS TO PAY THE EXCHANGE FUND FOR ADDITIONAL CERTIFICATES OF INDEBTEDNESS, WHICH THEY ARE REQUIRED TO HOLD AS BACKING FOR ANY INCREASE IN THEIR NOTE ISSUES, IN FOREIGN EXCHANGE AT A FIXED RATE WITH REDEMPTION BEING TREATED SIMILARLY. THIS HAD BEEN FULLY IMPLEMENTED, HE SAID.

THE OTHER WAS THE REMOVAL OF INTEREST TAX ON HONG KONG DOLLAR DEPOSITS WITH FINANCIAL INSTITUTIONS, WHICH IS THE SUBJECT OF THE BILL.

THE FINANCIAL SECRETARY EXPLAINED ALSO THAT THE REMOVAL OF INTEREST TAX WITH EFFECT FROM OCTOBER 16 MEANT THAT APART FROM PROFITS TAX CONSIDERATIONS, THERE WAS NOW NO LONGER ANY TAX ADVANTAGE IN HOLDING FOREIGN CURRENCY DEPOSITS OR IN HOLDING HONG KONG DOLLAR DEPOSITS OFFSHORE.

THE LOSS OF REVENUE ARISING FROM THE REMOVAL OF INTERST TAX WAS ESTIMATED AT $250 MILLION FOR THE BALANCE OF THIS FINANCIAL YEAR, AND APPROXIMATELY $450 MILLION FOR THE FULL YEAR.

TO PRESERVE THE INTEGRITY OF THIS YEAR'S BUDGET, THE SECRETARY OF STATE HAD GIVEN APPROVAL UNDER SECTION 8 OF THE EXCHANGE FUND ORDINANCE FOR THE $250 MILLION DEFICIT TO BE MADE GOOD BY A TRANSFER FROM THE EXCHANGE FUND TO GENERAL REVENUE.

IN FUTURE, THE SITUATION WILL FORM PART OF NORMAL BUDGETARY CONSIDERATIONS, HE SAID.

SIR JOHN SAID THAT THE REMOVAL OF INTEREST TAX CARRIES WITH IT THE RISK OF EROSION OF THE YIELD FROM PROFITS TAX.

/THIS WAS