SECRET
PUBLIC FINANCE
1. Hong Kong receives virtually no financial aid from
Her Majesty's Government. In recent years it has run a substantial
surplus on the recurrent budget, from which it finances its own development
expenditure, which has been on a massive scale. The housing programme
in particular has been an outstanding success, and has been carried
through entirely from local resources. C.D. & W. assistance is limited
to grants from the Higher Education allocation for the two universities.
It is a sore point in Hong Kong that since the 1945 Act we have not
felt able to make a C.D. & W. allocation to the Hong Kong Government.
Our reason is that they are able to manage without; if they run short
of development finance, they should in our view raise local loans
(the public debt is very low) or increase taxation. But since we provide
no aid, we cannot exercise control over their financial policies;
ultimate responsibility of the Secretary of State is in practice
purely formal, and they are to all intents and purposes financially
autonorious.
2.
We (and also the World Bank) have expressed doubts whether the
Hong Kong Government should not increase taxation, and also raise
the
more loans, to pay for an even bigger development programme. The Hong Kong
view is that their traditional fiscal policy is the cornerstone of the
Colony's remarkable economic progress.
Given the political insecurity
of the Colony and the Chinese dislike for economic regulation and high
taxation, the Hong Kong Government feel that they would risk killing the
goose that lays the golden eggs if they changed their policies. This is
of a piece with their general attitude of almost 19th-century laissez-faire
in economic matters the only free exchange market in the Colonial
territories, free movement of capital, and as light a hand as possible on
any form of control of private enterprise.
6.
Revenue, both recurrent and Capital, for the current financial year
has been estimated at $1785m. (£111.5 m.) which is $133 m. (£8.3m.) above
the previous year's figure. At the same time the total expenditure
SECRET
/estimates