TNAG-0570-FCO40-703-Planning-paper-on-Hong-Kong-1976 — Page 112

CONFIDENTIAL

HONG KONG: PUBLIC EXPENDITURE.

NOTE ON POSSIBLE INCOME SUPPLEMENTATION SCHEME

1. With public expenditure (on the Consolidated Account) increasing, in real terms, by 11% a year over the period 1977/78 to 1980/81 and by about 81% in 1981/82, the ratio of government spending to the gross domestic product would rise to 231% in 1979/80 and 25% in 1981/82 (on the assumption that the (constant price) gross domestic product continues to increase after 1979/80 at 61% a year). The ratio of increased expenditure to increased gross domestic product for the period 1977/78 to 1981/82 would be about 37%, compared with 3% for the period 1972/73 to 1976/77. expenditure on the General Account might be as follows:-

HK$ million

at 1976 prices

Increased

1978/79

1979/80

1980/81

300

750

1300

1425*

2.

below:

1981/82

*with a further HK$ 200 million arising on the accounts of the Urban Council and the Housing Authority.

The additional revenue required could be derived as shown

Increased yield at Earnings & Profits

Tax, standard rate raised by 20% (from 15% to 18%)

(HK$ million, at 1976 prices)

78/79 79/80 80/81 81/82

Increased yield of Excise Duties, General Rates and Internal Revenue, all rates often increased by 12%

550 590

630

670

350

380

Yield of new tax on luxuries, at 15%

360

390

550* 590

1340

1440

3.

*some HK$ 250 million being carried forward

to 1979/80.

The additional resources available in 1980/81 and 1981/82 for disbursement under a scheme of income supplementation (the first 2 years of the scheme) would be about HK$ 650 million and HK 780 million respectively. This is after allowing for administration costs and the cost of collecting the new luxuries tax. The resources raised in 1978/79 and 1979/80 (see paragraph 2)

1

CONFIDENTIAL

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