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spent on social programmes.
The Hong Kong Government is at present taking only a small slice (around 17%) of GDP and if the size of the cake is reduced there seems to be no real reason why the Government should not take a larger slice to compensate. In short, the rate of taxation could be increased in order to ensure that adequate resources are available for social programmes. Incidentally, there has still been no reply to Lord Goronwy-Roberts' letter of 22 June to the Governor asking how the Hong Kong Government intended to improve the taxation system following the disappointing report produced by the Third Inland Revenue Review Committee.
4.
We should also be concerned if a cut-back in Hong Kong's textiles exports to the Community were to prejudice the chances of the British bid for the Hong Kong power station project. Again, the Governor hints in paragraph 10 of his letter that this might be one consequence. This might be so, if those concerned in Hong Kong chose to look at matters in that way, but the DOI would agree that we cannot by any means be certain that we are well placed to obtain the contract with the China Light and Power Company. It still seems that at the end of the day price will be what matters and that the Japanese will have the edge.
5. I attach a more detailed note that we have prepared in the department on the Hong Kong Government's case. We have come to the conclusion that the case has been overstated.
6. We have not consulted the Economists Department at this stage and, for reasons I explained on the telephone, I am not copying this minute and attachment elsewhere in the Office or outside.
8 September 1977
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A.F. deillon Д
D F Milton
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Hong Kong & General Department
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