TNAG-0613-FCO40-761-Visits-of-Governor-of-Hong-Kong-to-UK-1977 — Page 57

Mr Cortazzi

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HKK.026/3

2.5 NOV 1977

CONFIDENTIAL

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Secretary of State

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GOVERNOR OF HONG KONG'S CALL ON THE SECRETARY OF STATE

1.

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Sir Murray MacLehose is calling on the Secretary of State at .30 p.m. on Wednesday, November. I suggest that the discussions should concentrate on three main topics:

(a)

Social Progress

A Planning Paper drawn up in mid-1976, and agreed with the Hong Kong Government, set out a programme of social and economic development for the next 5 years. I attach a summary

of its main recommendations. Once effect is given to all the proposals that are contained in the Hong Kong Government's legislative programme for the current year, virtually all the Planning Paper's programme will have been implemented. The main problems still outstanding are:

(i) Social Security: We should like to see faster progress towards an effective, non means-tested scheme for unemployment benefits and old age pensions;

(ii) Budget and Taxation: Taxes remain very low in Hong Kong, with a maximum rate of income tax at only 15% and few indirect taxes. The Government maintain

that, with adequate revenue to meet current public expenditure, there is no need to change this state of affairs (which is one of the main causes of the Colony's success in attracting foreign investment). But a recent World Bank report criticizes the low proportion of GDP being devoted to public expenditure (17% compared with 54% in the UK). The present policy in Hong Kong is to estimate revenue then tailor policies

to the funds available. We should like to see a more positive approach. This may well lead to an increase in public expenditure, which should be partly financed by introducing an element of progressivity into the tax system thus increasing its redistributive effect.

CONFIDENTIAL