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He said that during last year's Budget debate some Legislative Council members expressed concern about the consequences of increasing the basic allowance in real terms, that is, at a higher rate than inflation. They argued that the effect might be to make the tax net too small or the tax base too narrow.
"I have looked carefully at the statistical evidence on this subject. In each of the last five years, we have raised the basic allowance in real terms. Yet the total number of taxpayers, that is, the tax net, has remained relatively stable, at around 1.4 million.
"Similarly, the yield from salaries tax, as a proportion of total revenue, that is. the tax base, has been reasonably stable over the last five years." he said.
The explanation for the stability of our tax net and productivity of our tax base lay in our rapid economic growth, he said.
Salaries taxpayers occupied the better-paid jobs and had benefited most from the increasing demand for well-qualified and experienced staff. The result was that while an increase in the basic allowance in real terms removed some taxpayers from the tax net, their disappearance tended to be temporary. As their salaries rose, they returned to the tax net.
"I hope that members will accept my assurance that today's tax concessions will not undermine the productivity of Salaries Tax as a source of revenue," he said.
He estimated that these concessions would cost $3.1 billion in 1997/98 and $20 billion up to 2000/01.
The proposals on Salaries Tax will take effect from the year of assessment starting on April 1, 1997.
End
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