TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 106

revenue.

6

I would like to see these ratios approximate

45:55 and 65:35.

do not do so in practice too tragically. The fact is the ratios serve to remind us of the significance of indirect taxes and fees and charges in our circumstances. The yields from cur 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. And 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 arrangments are available where required.

But I do not take the fact that, they

18.

;

The 1977-78 budget does not accord very closely with these four sets of guideline ratios: thus récurrent expenditure will absorb nearly 85% of recurrent revenue (c.f. 80%), the surplus on recurrent account will finance only 55% of capital expenditure (c.f. 50%) and the ratio of recurrent expenditure to total expenditure will be 76% (c.f. 70%). These are quite serious breaches of the guidelines, but capital revenue will be very buoyant in 1977-78, financing 47% of capital expenditure (c.f. 20%) and, therefore, it was possible for me to produce a balanced budget, making these breaches acceptable. (But we do not intend to allow recurrent expenditure to absorb too large a share of recurrent revenue indefinitely).

19.

As regards the balance of the fiscal system, in 1977-78, according to the budget speech, the ratio of direct to indirect taxation will be 55:45 (c.f. 45:55) and the ratio of direct and indirect taxation taken together to all other

These recurrent revenue will be 73:27 (c.f. 65:35). ratios are some distance away from the guideline ratios.

20.

However, in putting forward certain tax concessions and reforms for 1977-78 in favour of 100,000 ratepayers, 210,000 personal taxpayers (of whom 60,000 will be removed from the tax net) and aspirant purchasers of modestly priced flats (through an extension of certain stamp duty concessions)