TNAG-0453-FCO40-518-Budget-of-Hong-Kong-1974-1975-1975 — Page 167

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(D) Cost-push inflation

95. Fourthly, I have heard it said that rapid inflation leads to higher demands for wages which in turn further push up prices leading to yet more wage demands, and so on. I think this can be dismissed in Hong Kong's case, simply by reference to the figures in the Economic Background publication on wages and prices that I have just cited. Indeed, I would suggest that it is the very fact that this

cost-push type of inflation is not occurring here that is

at the root of the current anxieties about prices and the cost of living that honourable Members have sought to represent. But, of course, if cost-push inflation could and did occur

the economy would be seriously endangered and the prospect of renewed growth diminished.

96.

Fifthly,

(E) Tax system

there is the tax system. Several honourable Members have suggested that certain of my 1974 revenue proposals could be inflationary. I hotly dispute this. Let me emphasise,

once again, that our tax system is non-inflationary, and that

my 1972 and 1973 revenue proposals were designed to relieve

the cost-price system of tax levies which could be reckoned

to be inflationary. Further, my 1973 personal tax reform

proposals were also designed to update the system to present day

cost/income levels. It should also be remembered at this

point that our budgetary policy eschews deficit financing through

Government bond issues which are taken up by banks and

accepted as eligible liquid assets.

(F) "Profiteering"

97. Sixthly, and I know this is on the minds of many of my

honourable Friends, there is the question of "profiteering".

I could easily define this away and say that it does not

constitute inflation as such. But I have no wish to get

involved in a terminological argument. Certainly, at a time when prices are rising rapidly, the scope for "profiteering"

becomes greater and, certainly when wages are rising less

rapidly than prices, "profiteering", even though it may always

have existed, may become that much more noticeable.

/Before.....