TNAG-0103-FCO40-139-Briefs-and-background-notes-for-Lord-Shepherd-1967 — Page 106

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CONFIDENTIAL

BACKGROUND NOTES

NO.

PUBLIC FINANCE

9

Hong Kong receives virtually no financial aid from

Her Majesty's Government. It runs a substantial surplus on the recurrent

budget, from which it finances its own development expenditure, which

has been on a massive scale. The housing programme in particular has

been an outstanding success, and has been carried through entirely from

local resources. C.D. & W. assistance is limited to grants from the

Higher Education allocation for the two universities.

It is a sore

Our reason is that

point in Hong Kong that since the 1945 Act we have not felt able to make

a C.D. & W. allocation to the Hong Kong Government.

they are able to manage without; if they run short of development finance,

they should in our view raise local loans (the public debt is very low)

or increase taxation. But since we provide no aid, we cannot exercise

control over their financial policies; the ultimate responsibility of the

Secretary of State is in practice purely formal, and they are to all

intents and purposes financially autonomous.

no tax

2. Fiscal policy is in fact a matter of some controversy. The standard

rate of tax on earnings and profits was for many years maintained at the

low rate of 121% (though the rate is doubled in certain circumstances on

the highest personal incomes) but was raised to 15% last year;

is charged on income or profits arising outside the Colony. There is no

general tariff and duty is levied only on alcoholic beverages, tobacco,

hydrocarbon oils, table-waters and methyl alcohol imported or manufactured

for internal consumption. The other main sources of revenue are rates on

property, stamp duties, estate duty, taxes on betting and entertainment

and land sales. Annual revenue and expenditure have approximately doubled

over the past five years. There was a budget deficit in 1959/60, in

1965/66 (£8.6m.) and in 1966/67 (provisionally £1.lm.), but in all other

years since 1947 surpluses have been realised.

CONFIDENTIAL

13.