TNAG-0526-FCO40-621-Office-meetings-on-Hong-Kong-affairs-papers-1975 — Page 3

A THE BUDGET

CONFIDENTIAL

(Hali)

1. The feature of the Budget which is likely to be of most interest to Lord Goronwy-Roberts is the decision to increase taxation whilst at the same time stepping up expenditure on social and community services.

2. The Budget raises an additional HK$467 million in new revenue. Of this amount HK$100 million will be produced by a 10% increase in the rate of company profits tax (15-16.5%). The rest will be raised by increases in indirect taxation, notably in betting tax; higher duties on liquor and tobacco; the reintroduction of entertainment tax; higher rates and postal charges, etc.

3. Mr Haddon-Cave also announced the decision to appoint an Inland Revenue Ordinance Review Committee to examine the possibilities for raising additional revenue in the Colony. The Financial Secretary hopes that the appointment, membership and terms of reference of the Committee can be announced by about the middle of 1976. Mr Haddon-Cave also made it clear that he intends, as an interim measure, to introduce a tax on dividends to be deducted at source before distribution. It is hoped to introduce this tax for the assessment year 1976/77.

4. The ratio of public expenditure to GDP, which averaged 15% over the 10 year period to 1973/74, has now jumped to almost 20%. This is fairly high for an economy at Hong Kong's level of

development.

5. Expenditure on the social services comprising education, medical and health services, housing, social welfare and labour accounts for the record sum of HK$3057 million, corresponding to 41.8% of total expenditure. The total is allocated as follows (with 1974/75 in brackets for comparison):

Education

Housing

Medical & Health

Social Welfare

Labour

$1,336.5 million

$793.9 million

($1,209.3m)

($660.5m)

$583.2 million ( $563.8m)

$326.7 million ( $270.1m)

$17.2 million ( $15.9m) 16. A

CONFIDENTIAL