TNAG-0568-FCO40-701-Planning-paper-on-Hong-Kong-1976 — Page 216

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Possible deficiencies in the present economic, social and institutional programmes

Fiscal

32. The most obvious distinction between Hong Kong

and other industrial societies, particularly those at a comparable stage of development in the region eg Singapore, is the comparatively low, narrowly based and regressive nature of direct taxation. To some

degree it must be accepted that the present system has been conducive of growth and that political uncertainties require a measure of discount for foreign and domestic investment. But the need for greater

public expenditure requires greater resources to be

available to the Government and taxation is the

obvious source, particularly since deficit financing may become more difficult as political uncertainties increase. The present Governor recognises this to be so but has required the evidence of public support for his social programmes before attempting to over- come resistance to the reform of the taxation system. He is to raise the level of direct taxation in the

next Budget; and a Commission is promised on the reform of the tax structure generally. The argument that investors would cease to invest if any move was made to raise the total tax payable by any individual above 15%, a view often expressed in Hong Kong in the past, lacks conviction: an identical argument against change was used in the 60's when the rate stood at 121%; and there is good reason to suppose that the strength of Hong Kong as a commercial banking and communications centre would continue to be attractive

to investors if tax rates were much higher and the tax burden more fairly spread.

Social

33. In the area of social policy, the most obvious weakness is the fact that there is no contributory social security framework and consequently no provision for unemployment benefit, adequate retirement

/pensions,

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