TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 80

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p.s.

The forecast exercise showed us running into

deficit in the new three year forecast period 1979-80 and 1981-82. Whether this will actually happen remains to be seen. Nevertheless, amendment of the arrangements for the taxation of banks (now agreed by XCo and which I will announce on Budget Day) effective from 1st April 1978, and worth $160 million in 1979-80 and a further $80 million thereafter could come in

useful.

So could anything that XCo and Leg.Co. agree on the taxation treatment of shipping profits (paragraph 12(c) above). It would also be useful to have in reserve, if necessary, a further addition to profits tax. These increases would all be seen to be necessary against the background of a 1979-80 deficit, but politically impossible to justify for this year with a balanced budget and a very large surplus in the current year being

put to reserves. negotiation situation, and the uncertainty that still hangs over the matching action the Americans will take (I hope this will be quite small) is one in which a balanced budget and an absence of new taxation is appropriate.

I also think that the post-EEC

And remember we are able

to finance all the old and new programmes planned

within this framework.

Of course, if we had not

been able to do so, then we would have had to accept the necessity of further taxation - as I think would the public.

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