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SECRET
Agreement. The Governor believes that a higher contribution
the in wesend
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would be disproportionately damaging to Hong Kong's economy:
Hong Kon
which
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it would aggravate unacceptably the very substantial budget 31
about £ 2 n (about 30% of total rever of 1975. deficits which are already forecast for the years 1976/77-
1978/79 and will call for a combination of expenditure cuts,
higher taxation and increased borrowing at a time when there
are heavy demands for increasea capital expenditure and
economic circumstances do not favour tax increased. A higher
contribution than £17M would also, in his view, be impossible
to negotiate with the unofficial members of the Councils-
i Ho the and would be unacceptable to public opinion, which is already
"
resentful of other policies imposed by HMG, e.g. on the death
penalty. Even a contribution of £17M might be acceptable
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£40м.
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5. The Governor also sees positive disadvantage in Hong
Kong having the dominant voice in detailed matters affecting
the garrison which he believes the Councils would claim if
Hong Kong were required to contribute more than half its
cost.
6. Two elements outside the figure of £40M are "transitional
costs of £2.7M in 1976/77, reflecting the fact that the
reductions in the garrison cannot be implemented fully before
1st April 1977, and capital costs of £8.2M falling within the
next Agreement for the procurement of replacement patrol
craft. The Governor suggests that Hong Kong should not be
asked to contribute to the former (it. might be useful to
concede this point in negotiation). The latter it would
seem right to leave on one side for separate consideration
when the shape of the future garrison has been finally decided. The Governor would not object to this.
SECRET
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