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in Government thinking within existing budgetary restraints. It is quite true that the present 40% represents an increase as compared with the 37% in 1972-73; but our point that the present 40% is no higher than in 1967-68 still stands.
6.
Paragraph 10 of the Governor's Despatch states the well- known fiscal limitations on the acceleration of social programmes as seen from Hong Kong: the need for a comparatively low taxation in view of
political uncertainties etc; and the inhibitions on borrowing.
It
is inherent in his thought, but nowhere precisely stated, that some increase in taxation may be necessary but in this connection it is noteworthy that the Financial Secretary's recent Budget speech seems to imply undue attachment to the present taxation levels; and undue emphasis on capacity restraints (implying that increased taxation would be no answer to the problem). Indeed, there is a clear implication
that the approach to fiscal problems will not change until 1980 (when, incidentally, Mr Haddon-Cave is due to retire). We shall need to explore this issue more thoroughly with the Governor. On the face of it we do not see why, with a slack labour market following the recession, the non-fiscal restraints should be regarded as so important. Meanwhile it is some comfort to know that the promised Inland Revenue Review Committee is considering the system of direct taxation under the chairmanship of a former Commissioner of Inland
Revenue here.
7.
Nowhere, incidentally, does the Governor refer to methods of financing e.g. the housing programme by genially different approach to the financing of capital projects/ along the lines considered in paragraph 10 of Annex C to the planning paper; or to the use of other tools for fiscal and monetary management mentioned in paragraph 6 of Annex C.
Labour
8.
In paragraph 31, the Governor recognises that labour condition in Hong Kong is a field of acute sensitivity here and goes on to defend the existing situation which, in effect, comes down to stating that
Hong Kong workers enjoy the second highest standard of living in Asia (after Japan). This, however, does not cover the whole area of our
/concern.
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