XN000022-1996-03-06 — Page 45

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keep adequate fiscal reserves to provide a cushion against future uncertainties;

combat tax avoidance and evasion;

provide concessions where most needed; and finally,

minimise the inflationary impact.

The Government has not devised these principles in isolation.

"I believe that they represent a community consensus. They have served us well in the past, and I am convinced that they must remain our guide for the future. These are the principles upon which I have framed my revenue proposals in this year's Budget," he said.

From time to time, there have been calls for the Government to implement bold revenue measures in order to "stimulate the economy", to reduce inflation or to cut unemployment.

"I have no doubt that the motives of those making such suggestions are genuine, and we share their concerns. But do they make practical sense in Hong Kong's circumstances? Total public spending as a proportion of GDP is 18 per cent. Government spending itself is only about 14 per cent of GDP. In consequence, we have been able to maintain low taxes."

With the standard rate of salaries tax at 15 per cent and corporate profits tax at 16.5 per cent, the tax rates are among the lowest of any advanced economy in the world.

Together they provide about 40 per cent of the Government's total revenue. As a result, the Government's ability to directly influence the overall level of economic activity through fiscal means is very limited.

In order to achieve any appreciable impact on GDP, taxes would have to be cut very substantially indeed.

For example, to engineer an increase of one percentage point in GDP, the Government would have to slash taxes by over 10 percentage points, throwing the Budget and the Government's financial guidelines into serious disarray.