TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 59

SECRET AND PERSONAL

20 February 1978

Sir Murray MacLehose

GBE KOMG KCVO

BONG KONG

HKK 100/2

2 'FER 1978

INDEX

No

lat

i svin

THE BUDGET

1. You will by now have seen telegram no. 125 from

Lord Gorowy-Roberts. The Minister of State, as you have seen, approves of the great increase in public spending and particularly the 35% increase in spending on social services. He has, however, asked me to write and let you know his more detailed reactions,

2. The Minister of State suggests that it will be important to lay plans to take advantage of the buoyant revenue position revealed by the onntinuing series of large surpluses shown by Hong Kong. In 1978-9, on past trends, your actual surplus could again turn out to be of the order of HK$1.8 billion (although I was glad to see from Philip's note that he is hopeful of greater accuracy this year). Lord Goronwy-Roberts accepts that it is

too late to make any significant changes in this year's budget now. But the record of recent years does seem to show that there should be no financial constraint on a further moderate increase in public expenditure and he would like you to give considera tion in the coming months to some moves to ameliorate yet further the lot of the poorest sector of your community. The details are, of course, for you but you might think in terms of reducing or abolishing some of the charges imposed on them. e.g. rates for the residential properties occupied by the lower income groups or of increasing the value of some of the transfer payments.

3.

In paragraph 4 of your telegram no. 156 you predict that the budget will move into deficit in 1979/80. This is, of course, a safe house-keeping prediction but the trends of the previous few years suggest we should not take it for granted. Although we accept that you could not justifiably introduce a 1% increase in profit tax this year, nevertheless the Minister suggests that the introduction of such an increase to fund increased transfer payments should not be long delayed. The new interest taxation proposals are, of course, a good step in the right direction, but their effect HK$80m. extra in a normal year and that of the luxury car tax, cannot be regarded as really significant.

SECRET AND PERSONAL