G.F, 323
CONFIDENTIAL 5)6
DEFENCE COSTS AGREEMENT
Opening Session with the Minister of State for
Defence, Rt. Hon. William Rodgers MP
28th October 1975
Statement by H.E. the Governor
I should now like to reply to the Minister of State's explanation of HMG's position.
I must say immediately that the Hong Kong Government is deeply concerned at the size of the figure HMG is demanding, and at the apparent rigidity of the views held in Whitehall that it is within Hong Kong's economic and political capacity to pay.
But before going into that, I would like to speak about what I might call the positive side of your statement.
I very much welcome HMG's acceptance that Hong Kong is a special case, and that this requires a United Kingdom contribution to the carrison in both men and money. This is certainly necessary if an adequate degree of confidence is to be maintained vis-a-vis Peking, vis-a-vis the population of the Colony and vis-a-vis the investing public both local and foreign, The latter is not unimportant because without their confidenca and support employment will fail and Hong Kong will rapidly become a city of mounting anxiety and, and I stress this, ultimately become a liability to HMG.
Equally we welcome your assurance about the possibility of reinforcement, because we live in uncertain times, and on the edge of major changes in leadership in China, which through uncertainty or other causes could affect the present tranquility of the Colony.
On the negative side I must tell you very frankly that HMG's insistence on their contribution being limited to 25% presents my government with appalling and so far as I can see at this moment insuperable difficulty.
It is natural that you refer to the comparatively low level of standard tax rates in Hong Kong, even though it may also have occurred to you that there may be some connection between these and the rapid economic growth of the Colony So which you refer. But we have rapidly expanding social programmes to which this Government are committed and to which the public attach the greatest importance. And I think the moro relevant statistic is that the proportion of the GNP taken by the public sector has increased from about 15% to about 20% in 3 short years. It will be apparent to you the pressures that such increased social spending are placing on the economy.
accommodated.
Budgetwise the figure of $350 M simply cannot be
Nor could an increase of these dimensions be explained to the public. Under the current agreement to which after all HMG is a party, Hong Kong's contribution in 1975/76 is estimated at $110 M for a garrison of 6 2/3 units.
With respect
CONFIDENTIAL
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