TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 37

CONFIDENTIAL

Continuation blue minute to Mr Stewart from A Smith, Senior Economic Adviser HONG KONG: IMPACT OF BUDGETARY POLICIES ON INCOME DISTRIBUTION

Mr Milton

Mr Stewart

1.

It is unnecessary to pursue independently the question of the impact of budgetary policies on income distribution. At present the high threshhold and low direct tax rates limits the amount of direct redistribution which can be effected. Indirectly, income distribution is affected by eg subsidised housing, medical services, educational services; in short by more expenditure on social account from which benefits the poor more than the rich. Lord Goronwy-Roberts has already written to the Governor in connection with the IRORC report asking the Governor for ways in which the taxation system might be improved within the next year or two, and he has made it clear to the Governor that HMG

Mr Stewart has is interested in more expenditure on social account. also written to the Governor on the budget. These two approaches are, I think, sufficient at present to ensure that we do not lose sight of the need for a greater redistribution of income in Hong Kong.

2. You agreed at the weekly meeting this morning that no further action should be taken.

46

6 July 1977

T Duffy

Hong Kong & General Department

RECOVED IN

REC

*.51

-7 JUL 1977

HKK 100/2

CONFIDENTIAL