TNAG-0669-FCO40-818-Policy-on-housing-and-resettlement-in-Hong-Kong-1977 — Page 136

G.F. 323

CONFIDENTIAL #2

機密

Tax Status

(a)

2.

to absorb as much long-term money as possible throu h the issue of mortgage bonds;

(b) to fall back on short-term "uaranteed

notes as required; and

(c)

a last resort, to accept wholesale deposits including Government funds.

4.

Rothschilds recommend that the mortgage bank and its paper should be exempt from tax. Exempting the mortgage bank from tax liabilities is a natural corollary of its (non-profit-making in the sense that it will not declare dividends but not in the sense that it can accumulate reserves to meet its operational requirements). But othschilds' argument that the bank's paper should be exempt from tax (because the additional cost of funds incurred by the bank through its papers attracting tax would, at best, represent a more transfer from one Government account to another and, at worst, a loss because of leakages in the fiscal system) is valid only if the bank were institutionally an integral part of the Government, but this is not the intention. On the other hand, because the mortgage bank has to serve a social purpose (i.c. it must borrow as cheaply as possible so as to be able to on-lond at rates which could be afforded by eligible households), there is a strong argument for exempting its paper from tax liability and, subject to the views of the Commissioner of Inland revenue, a provision for this will be entered in the Bill establishing the bank.

Interest Lates

5.

Rothschilds have advised that, under existing market conditions, the mortgage bank can borrow funds sufficiently cheaply to on-lend within the guidelines the Working Party has formulated for mortgage terms (i.e. under 9, p.a. for 15 years). They have also recommended a five-year period for adjusting interest rates in respect of the on-lending operations and the same or longer periods in respect of its borrowings. But there may come a time when interest rates roach such a high level that it would be difficult for the mortgage bank to offer new loans or to maintain existing loans it interest rates which satisfy the Working Party's guidelines. This situation could be avoided partly through optional liquidity management and partly through a variety of measures, including

(a)

A

extending the maturity of loans;

7(3)

機密

CONFIDENTIAL