8.
SECKET
a) Taxes on earnings and profits must be comparatively low, partly to retain and attract investment inspite of longterm political uncertainty to ensure employment, and partly to stimulate reinvestment and growth with the same objective. (See also (b)).
b) There are technical problems connected with the four separate levies on profits and earnings that make them extremely inflexible and inequities and loop-holes have also developed in them. I have appointed an Inland Revenue Ordinance Review Committee under the chairmanship of an ex-Commissioner of Inland Revenue in the United Kingdom, to examine the whole problem and report by the end of this year. I hope that its recommendations will assist both to make the system more productive at constant rates, and also indicate ways in which, if otherwise desirable, these taxes may be raised or made progressive.
c) Hong Kong has recently broken with tradition and financed both budget deficits and specific projects by recourse to borrowing. It has also accepted contingent liabilities for instance those accepted in respect of the Mass Transit Railway alone will peak at HK$5,000 м. The sum of all these liabilities is already very great in proportion to the Hong Kong Govern- ment's surpluses or fiscal reserves now standing at HK$ 2,600 M. The Government must be careful not to scare investment away by adding uncertainty about its solvency to the unavoidable handicap of uncertainty about its long-term political future.
d) There are practical problems of administration, let alone control, that develop if expenditure is allowed to grow too fast. Hong Kong's experience is that this limit is reached between a growth-rate of 12 and 14% at constant prices. Naturally the growth that is acceptable must also depend from year to year on the state of the economy.
But the average growth rate in real terms between '72/73 and 79/80 is 11%, which, allowing for the two recession years, is certainly near the practicable limit.
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