CONFIDENTIAL
deficit or extra taxation to meet the larger contribution demanded could divert resources from exports and damage export competitiveness
still in an economic situation which is aly serious. The resource
diversion argument has little force in the situation of substantial
unemployment. But the main answer to this kind of criticism is that in relation to the size of Hong Kong's economy and her budgetary expenditures and revenues the sums involved are unlikely to have as
serious an economic effect as this claim implies. While it is not
recommended that the Minister of State gets involved in arguments about Hong Kong's taxation system he could point out that tax
revenue as a proportion of GDP is three times higher in the UK than
is in Hong Kong. An addition of no more than 1.7% in total revenues is required to cover the extra HK 112m referred to in paragraph 9
above.
CONFIDENTIAL
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