TNAG-0542-FCO40-637-Strength-of-garrison-in-Hong-Kong-1975 — Page 27

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downward influence on the level of imports. The overall flow of funds through the foreign exchange market was, however for the most part unaffected, since the bulk of the government's accruals was generally placed abroad (in practice, in London, Hong Kong being, until recently, part of the Sterling Area).

The Budget

13.

The

But these budget surpluses were largely unplanned. government has, in fact, generally aimed to balance the budget and this has been consistent with its non-interventionist economic philosophy. It inherited from the pre-war administration a low standard rate of direct taxation (confined to a narrow tax base), an almost total absence of excise duties (according with Hong Kong's free-port status) and relatively low scales of fees and charges generally. Yet without radically altering this low tax structure the government found, year after year, that it was more than able to finance even the most ambitious of its expenditure programmes (these being necessitated by the mounting social pressures emanating from the rapid growth of the population). The almost paradoxical persistence of budget surpluses throughout the 1950's and the 1960's (the fiscal years 1959/60 and 1965/66 excepted, the standard rate of income tax being raised in these years, as a result of the deficits, from 10% to 121% and from 12% to its present 15% respectively) was largely a consequence of the extraordinarily rapid growth of the economy, but, to an extent, it was also on account of improvements in the efficiency of the revenue collecting machinery.

14. During the 1960's, a high proportion (35%) of the government's expenditure was devoted to housing and social services (including education) and this continues to be the case (though with the rabio now in excess of 40%). Housing expenditure increased, in current terms, by over 200% to HK$220 million for 1971/72, whilst spending on social services and education increased by more than 250% to HK8970 million. Total government expenditure, at nearly HKS 3,000 million, was equivalent, at this time, to about 15% of the gross

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