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FIGURES WERE SET IN 1974 FOR THE VARIOUS COMPONENTS OF THE CAPITA
ACCOUNT OVER THE THREE YEAR FORECAST PERIOD 1975-76 TO 1977-78.
94. SECONDLY, IT IS NECESSARY TO DEFINE THE WAY IN WHICH THE RESIDUAL DEFICIT ON CAPITAL ACCOUNT SHOULD BE FINANCED, VIZ: AT LEAST HALF SHOULD BE FINANCED BY CAPITAL REVENUE AND NO MORE
THAN HALF WITH DEBT.
95. THE THIRD GUIDELINE DEFINES A LIMIT FOR DEBT IN CASE THERE IS
A CONTINUOUS RECOURSE TO LOAN FINANCE TO BALANCE THE CAPITAL ACCOUNT. THUS I HAVE SUGGESTED THAT ANNUAL DEBT SERVICE CHARGES SHOULD NOT, AT ANY TIME, EXCEED INCOME EARNED ON OUR FISCAL RESERVES.
96.
FOURTHLY, THE BALANCE OF THE FISCAL SYSTEM SHOULD BE DEFINED IN TERMS OF THE RATIO OF DIRECT TO INDIRECT TAXATIONS AND THE RATIO
OF DIRECT AND INDIRECT TAXATION TAKEN TOGETHER TO ALL OTHER
RECURRENT REVENUE. IN 1975-76 THESE RATIOS WERE 55:45 AND 70:30
RESPECTIVELY AND IN 1976-77 (REVISED ESTIMATES) THEY ARE LIKELY
TO BE 55:45 AND 72:28. WHEREAS I WOULD PREFER TO SEE THESE RATIOS
NEARER TO 45:55 AND 65:35, I DO NOT TAKE THESE DIVERGENCES TOO TRAGICALLY. THE RATIOS DO SERVE TO REMIND US OF THE SIGNIFICANCE
OF INDIRECT TAXES AND FEES AND CHARGES IN OUR CIRCUMSTANCES. THE
YIELDS FROM OUR SYSTEM OF EARNINGS AND PROFITS TAXES ARE INCOME
SENSITIVE AND MUST REMAIN SO, IF THE ECONOMY'S INTERNAL FLEXIBILITY IS NOT TO BE DAMAGED, WHEREAS YIELDS FROM INDIRECT TAXES AND FEES AND CHARGES ARE, RIGHTLY, AND BY THEIR VERY NATURE, MUCH LESS SO. IT IS TRUE THAT, IN HONG KONG, THERE ARE SPECIFIC POLICY REASONS WHY SOME PUBLIC SERVICES SHOULD NOT BE CHARGED FOR AT COST - EDUCATION AND MEDICAL SERVICES ARE OBVIOUS EXAMPLES. BUT WE MUST REMEMBER THAT, IN A LOW TAX ENVIRONMENT, ALL OTHER THINGS BEING EQUAL, PUBLIC SERVICES MUST BE CHARGED FOR, AT LEAST ON A COST-RELATED BASIS, PROVIDED ADEQUATE REMISSION ARRRANGEMENTS ARE AVAILABLE WHERE REQUIRED.
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/ 97. FINALLY,
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