SECRET
announcing wage increases for public servants, ranging
between 12-22%, at the end of June and there would be
a progressive, if not immediate, ripple effect through
the private sector.
3.3
Lord Goronwy-Roberts asked how the Hong Kong
Government intended to finance their social programmes,
and invited Sir Murray's views on the possibilities of
increasing taxation, drawing on reserves, and borrowing
Sir M MacLehose said taxation would be increased,
though this would be unpopular. Increased taxation
might be more acceptable to public opinion if there
was also a small drawing on reserves. However, although
it might be necessary to draw on the reserves in
1974/75 in order to meet an expenditure 'hump',
or if revenue (which was currently running below 1973 levels)
failed to come up to expectations, Sir Murray hoped
that most of the reserves would be left intact. As to
borrowing, he said that Hong Kong would in any case
need to go to the market in 1975 for about
HK 2,000 million for bridging finance for the mass
transit scheme. In addition, they were considering
applications to the Asian Development Bank to provide loans of about HKS 150 million a year for three years. This would require a guarantee from HMG and he hoped it would be forthcoming. Hong Kong no longer had inhibitions about borrowing, or about using their
reserves where appropriate; but the size of the
reserves was an important factor in Hong Kong's credit- worthiness,
and should cover
3.4
her obligations.
Lord Goronwy-Roberts said that he broadly
agreed with Hong Kong's strategy.
4.
4.1
Labour Affairs
Sir M MacLehose hoped that Hong Kong's comments on the Labour Adviser's report had been
acceptable to HMG. Lord Goronwy-Roberts said there
was concern over the recent erosion of real wages in Hong Kong. He welcomed the Governor's judgement that
there would be a recovery in the second half of 1974
and that they would be back at 1973 levels by mid-1975.
SECRET
/4.2
NOTHING TO BE WRITTEN IN THIS MARGIN