SECRET
SECRET
UK EYES A
UK EYES A
(b) During the period to 1973/74 the Hong Kong economy had been strong
and had grown in real terms at an average of 71% to 8% a year. Signifi-
cant budget surpluses had been achieved.
Real growth of 8% had been
achieved in 1973/74 and it had been estimated at 4% for 1974/75.
However, it now seemed more likely that the actual real growth rate for
the year would be only 1-11% and this was partly due to time-lag in
receipts from increased profits tax.
be low and of the order of only 2%.
Growth in 1975/76 was expected to
Reserves were now at a critically
low level and barely sufficient to cover possible fluctuations in
external revenue. However, for the forecast years, it had been assumed
that real growth would return to the past high level of 7% per annum.
Even if such a recovery were affected, it was considered unlikely that
the capital expenditure programme could be wholly financed from the
surpluses on recurrent account and capital revenue.
Some retrenchment
was essential; borrowing and taxes would have to be increased.
(c) Tax increases however had to be approached with caution. Confi-
dence was essential to the economy and could easily be damaged. Pro-
tection of the growth potential of the economy was vital and this would
be hit by any significant withdrawal of the military presence. The
value of this presence to the economy was however unquantifiable.
(a) In these circumstances, an increase in the Hong Kong defence con-
tribution beyond that included in the forecasts was particularly diffi-
cult for budgetary and fiscal reasons, especially in the first three
years, although the possibility of some further increase in the next
two years could not be ruled out. The suggested increase to 75% of the
cost of the garrison would be seen as a thoroughly unreasonable demand.
1975 was a particularly difficult year in which to demand such an
increase.
10
SECRET
UK EYES SECRET
UK EYES A