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last year. The Governor shares my view that Hong Kong must continue to move towards more progressive taxation and social security policies; but I must agree with him that this is not the time for any radical change. I was happy to note that in the recent Budget Debate there, the Hong Kong public were put on notice that further tax changes must come, beginning with the introduction of a tax on dividends next year.
Corruption
4.
There has, as you know, been some pressure in Parliament for the setting up of a Royal Commission to investigate the extent of corruption in Hong Kong. This has been resisted because we believe a better approach is to allow the Colony to sort out its own problems in this respect. The Independent Commission Against Corruption has got off to a good start and by mid-February had instituted 77 successful prosecutions. This figure does not include the notorious case of Godber who came before the Courts last month and was sentenced to four years imprisonment. The Governor said that the case had caused some reaction against the Commission and in favour of Godber as the underdog. He added that after its initial popularity, the Commission was bound to encounter some hostility as its activities begin to draw in other
wrongdoers who would naturally try to exploit the media to avoid the consequences of their actions. In the Governor's opinion, Hong Kong is in for a fairly rough passage on corruption over the next couple of years, but he is satisfied that ICAC is developing satisfactorily.
Defence
5. We had some discussion on the size of the Hong Kong garrison and the relative proportions of the cost which will fall to be paid by the Hong Kong Government and ourselves when the present Defence Agreement runs out next April. The Chiefs of Staff are shortly to consider various options for reducing the size of the garrison below that hitherto envisaged ("the preferred garrison"). This follows further work on the problem as suggested
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