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$896 million-$467 million from new taxes and charges and $429 million from loan finance and has cut back the draft estimates by $1,442 million.
8. In several ways this Budget broke with Hong Kong traditions. Hitherto deficit budgeting has been unknown. Secondly, loan financing of the Budget has been unknown. Thirdly, it is proposed that part of this loan finance will be raised by an issue of Government paper in Hong Kong—again a totally new departure. Fourthly, substantial increases in taxes and charges in Hong Kong are always hard to get (in this instance equal to 7.3 per cent of the revised estimates for '74-75) and to do so in time of unprecedented recession obviously much more so. 9. I realise that in Whitehall, inured to massive deficits, and more massive scales of taxation and even more massive public debt the caution of these first small steps may raise a smile. But in the circumstances of Hong Kong, which are totally different, this path followed too far leads to hell rather than heaven, and if we tread cautiously for fear of brimstone I think we are wise to do so. But these breaks with tradition are of real significance and will give greater room for manoeuvre in future.
10. For my part I am convinced that Hong Kong must establish a rather but not excessively higher level of revenue of all sorts if it is to do the things that need doing. There is danger in leaving them undone and in the Government thus losing credibility, just as there is danger in retarding the growth of the economy by clumsy or abrupt fiscal policies. In 1972 and '73 we had built up the public expectation and enthusiasm necessary to carry through tax increases in '74, but with the oil crisis around us, and uncertainty and recession ahead, we were only able to edge forward slightly in '74–75 and make a rather bolder move in '75-76. Though all to the good this is not enough, and the Financial Secretary gave notice in his Budget speech of a need for a further $500 million of resources in '76-77.
11. Meanwhile this Government faces a period of acute financial stringency in 1975-76, and in '76-77 too unless, contrary to all expectation, the economy picks up so fast as to make it possible to obtain very significant additional resources. We can continue to expand housing and the New Towns and related communica- tions, and the forces of law and order; plans for the polytechnic and two technical institutes can be more or less effectively implemented on time; there can be some expansion of secondary education and social welfare services. But the really dramatic expansion of housing we had hoped for must be rephased, and the crash expansion of secondary education envisaged in the White Paper will have to be postponed at least for a year and probably two. Though disappointing, in the circumstances this has had to be accepted.
12. But I am more concerned about the reaction of the population, not so much to the inability of their government in time of recession to implement the popular plans it had announced in time of boom, but to a drop in standard of living and growing anxiety about employment. Industrial employment has fallen by 70,000 or 11 per cent over the last year, though other employment overall has probably remained about steady or has slightly dropped. The effect has been mitigated by energy and flexibility. For instance there has been a marked movement back into agricultural employment and into hawking, and there is some evidence of a slight movement back to China. Though this process has been painful and caused anxiety and distress things are still far removed from crisis proportions. Moreover the situation has been much eased by a slight drop in the cost of living. Provided economic activity does not decline further, and the cost of living does not start to rise again, there is no cause for serious alarm. But for this we are dependent on how demand develops in the US and Europe.
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