XN000022-1984-10-24 — Page 26

WEDNESDAY, OCTOBER 24, 1984

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THERE WAS, HOWEVER, NO SIGN THAT ANY SUCH MEASURE WOULD BE NECESSARY IN THE FORESEEABLE FUTURE, HE ADDED.

TURNING TO THE ACTUAL RATE OF 7.80, MR BROWN SAID THE WHOLE SYSTEM DEPENDED ON THE LINKED RATE REMAINING UNCHANGED.

+ANY UNDERVALUATION OR OVERVALUATION INDUCES CHANGES IN THE INTERNAL COST-PRICE STRUCTURE WHICH IN TIME BRINGS THE DOLLAR'S PURCHASING POWER BACK INTO PARITY WITH ITS EXCHANGE RATE,+ HE SAID.

+THE SYSTEM HAS NOW BEEN IN OPERATION FOR JUST OVER ONE YEAR, AND AFTER THE INITIAL IMPACT - WHICH DID OF COURSE REFLECT THE SHARP DEVALUATION THAT HAD OCCURRED EARLIER - EXPERIENCE SUGGESTS THAT EQUILIBRIUM HAS BEEN REACHED OR IS NEAR.

+ I WOULD REMIND MEMBERS THAT IT DOES NOT IN FACT MATTER MUCH TO THE SYSTEM WHAT THE LINKED RATE IS ONCE THE INITIAL EFFECTS HAVE BEEN ABSORBED, AND TO CHANGE THE RATE NOW WOULD MERELY WRECK THE SYSTEM AND CAUSE SPECULATION ON FUTURE CHANGES, THAT IS TO SAY BRING ABOUT A SITUATION THE LINK IS DESIGNED TO AVOID,+ HE SAID.

ON PUBLIC FINANCES, MR BROWN BELIEVED THE DEVELOPMENTS TAK ING PLACE IN OUR COMMUNITY WOULD LEAD TO INCREASED PUBLIC EXPENDITURE AND RAISED THE QUESTION OF WHERE WOULD THE REVENUE COME FROM.

WE NOW HAD A CLEARER PICTURE AS TO THE FUTURE CONTRIBUTION WE MIGHT EXPECT FROM LAND SALES, WHICH WOULD BE RESTRICTED UNDER THE TERMS OF THE AGREEMENT OVER THE FUTURE OF HONG KONG, AND FROM A MACRO-ECONOMIC POINT OF VIEW IT WAS NO BAD THING THAT SUCH MONEYS SHOULD ASSUME A MORE MODEST. ALTHOUGH HOPEFULLY MORE CONSISTENT SOURCE OF REVENUE, HE SAID,

MR BROWN BELIEVED THAT THE PROSPECT OF ADDITIONAL TAXATION WAS INEVITABLE, AND THEN INCREASED INDIRECT TAXATION WOULD BE PREFERABLE TO ANY SIGNIFICANT INCREASE IN DIRECT TAXATION.

A TAX ON THE CONSUMPTION OF A WIDE RANGE OF GOODS AND SERVI WOULD PERHAPS BE THE FAIREST METHOD OF SPREADING ANY ADDITIONAL TAX BURDEN EVENLY ACROSS THE COMMUNITY, HE FELT.

+A VALUE ADDED TAX WOULD MEET THE REQUIREMENTS OF THE DAY IN THEORY, ALTHOUGH THE DIFFICULTIES OF COLLECTION COULD WELL MAKE IT IMPRACTICAL IN PRACTICE. HOWEVER, IN MY VIEW SOME FORI OF SALES TAX WILL NEED TO BE CONSIDERED AS BEING THE MOST EQUITABLE WAY TO FINANCE THE COMMUNITY'S GROWING DEMANDS WITHOUT UNDULY DISTURBING OUR PRESENT ECONOMIC SYSTEM, WHICH MUST BE MAINTAINED IF BUSINESS IS TO CONTINUE GENERATING THAT PROSPERIT: WE ARE ALL PERHAPS TAKING TOO MUCH FOR GRANTED, HE SAID.

MR BROWN WAS PLEASED TO NOTE THE ASSURANCE GIVEN BY THE FINANCIAL SECRETARY IN THE LEGISLATIVE COUNCIL LAST WEEK THAT GOVERNMENT REMAINED COMMITTED TO A POLICY OF LOW TAXATION FRIENDLY TO OUR ENTREPRENEURS.

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