TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 88

4.

As to what is the appropriate level of allowance is

largely a matter of relative and subjective judgement. For the

Government, it must take into consideration the social, fiscal,

political and economic aspects of the situation, as well as the

cost of living. But for the taxpayer, his main concern is the

cost of living.

In the year 1970/71, the basic personal allowance was

fixed at $7,000 which was supplemented by a Lower Income Relief of $3,600, so that if a single person earned up to but not more

then $10,600, he did not have to pay any tax. As at that time there was also a working wife allowance of $3,000, a married couple

with a working wife having a total income up to but not more then

$20,600 also escaped the tax net. This $20,600 is arrived at by taking $7,000 each for the husband and his wife plus $3,000 working wife allowance and $3,600 Lower Income Relief.

As we may recall, personal allowances were increased in

1973/74 when a single person and a married couple were entitled to

basic allowances of $10,000 and $20,000 respectively. But the lower income relief, working wife allowance and dependent parent's allowance were

withdrawn and consolidated into the basic increased allowances.

Government has now proposed to maintain these basic allowances,

but to give a measure of relief by introducing supplementary allowances

equivalent to 25% of the basic personal allowances. However, these

supplementary allowances will be clawed-back by 20% for any amount in excess of both the basic and supplementary allowances, until the point is reached where the entire supplementary allowance disappears.

Public views have been expressed that such supplementary allowances

are not much of an improvement in real terms, based on the argument

that the General Consumer Price Index has advanced by some 37% from an

average of 142.7 for the 12 months ended March 1973 to an average of 195.6 for the 12 months ended December 1976. This is certainly not an insignificant rate of inflation and it is difficult to dispose of this argument lightly because of its effect on the value of the basic

allowances in real terms.

The suggestion that the supplementary allowance should be

a flat increase instead of being clawed-back is less persuasive.

The concept of a supplementary allowance with a"claw-back" provision,

complicated as it may seem at first glance, is devised to enable

the lower and middle income groups to have the full or marginal

henefit of the supplementary allowance and to require higher income

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