TNAG-1520-FCO40-2081-Employment-in-Hong-Kong-1986 — Page 51

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(g) The balance of the economic

arguments is

against the introduction of a CPF. The immediate result would be to increase employers' labour costs and to reduce employees'

take-home pay,

the effect being the same as an increase in the rates of profits and salaries tax. This would have an adverse impact (the extent depending upon rates of contribution and the circumstances of individual employers and employees) upon levels of economic activity and employment and upon business confidence generally. immediate adverse effects may tend to work themselves

over time, but the transitional period would be lengthy and the setback to economic growth might never be recovered.

out

The

(h) The introduction of a CPF would have a major impact on financial markets in Hong Kong. If a sizeable proportion of the fund were to be invested in foreign currency assets, there could be considerable disruption to the foreign exchange and money markets. This would take the form of unsettling pressures on the exchange value of the Hong Kong dollar and on interest rates and might necessitate greater involvement of the Exchange Fund in order to restore and maintain monetary stability. If investment were restricted to the domestic market, there are insufficient

insufficient first class Hong Kong dollar assets to absorb the volume of funds likely to be available.

view

(i) The reaction of employers to any proposal to

introduce a CPF is likely to

to be negative, particularly in

of prevailing sensitivity to cost increases. The reaction of employees is more difficult to assess and would depend very much upon rates of contribution, upon the division of the burden between employers and employees, upon individual

financial circumstances

and

and

preferences as between consumption saving. Employee reactions are also likely to be influenced by political perceptions.

(j) There is already a substantial framework of social provision and of private sector provident schemes in Hong

Kong and weakens the case for a CPF.

this

CONFIDENTIAL