TNAG-0579-FCO40-712-Discussions-with-Sir-Murray-MacLehose--Governor-of-Hong-Kong-1976 — Page 35

CONFIDENTIAL

Line to Take

3.

I recommend that Lord Goronwy-Roberts should ask the Governor and Mr Haddon-Cave for a commitment that the Hong Kong Government should give active consideration during 1977 to the introduction of a form of income tax (as compared with the present disparate and non-aggregate system of salaries' tax, company tax and dividend tax), that there will be an element of progressivity in this income tax and that some hint of this be given in Mr Haddon-Cave's budget speech in February 1977. The Minister of State might in addition ask whether it is not possible at this time to introduce a two-level system of salaries' tax.

4. Mr Haddon-Cave might be asked what, in view of the (OECD and Treasury) forecast of a turndown in world economic activity levels and world trade from late 1977 onwards, his plans for public expenditure would be in such a situation. Is the agreed programme likely to be effected? The Senior Economic Adviser

concurs.

8 December 1976

f.o. B. Slan

JAB Stewart

Hong Kong Department

Prome

Mon'

Spust Colly ji Strii

2

CONFIDENTIAL