CONFIDENTIAL
4
LINE TO TAKE
4.
These factors, taken together, suggest both that the Hong Kong Government is well placed to implement the programme of measures contained in the 'Planning Paper and that there is a strong case for their pressing ahead as quickly as possible. The financial resources are evidently available and our latest information is that there are no physical or manpower constraints to developments in the public sector, eg education, housing, hospitals. At the same time, there is a need to develop a more adequate "safety net" as a safeguard in the event of a downturn in the Hong Kong economy. It now seems that this might occur sooner than had been anticipated when the Governor was last here.
5. It remains important to seek to persuade the Hong Kong Government to move away from the kind of views that the Financial Secretary expressed in his budget statements earlier this year (paragraph 1 above) if the right climate of opinion is to be created for an increase in public expenditure on social programmes. A more flexible and less ideological approach is called for. The Chief Secretary's statement (see paragraph 3(vii) above) is a step in the right direction and the attitude reflected therein deserves encouragement.
It is
not clear, however, whether this statement is meant, as we
would like, to foreshadow an increase in taxation, on a
progressive basis, in the 1977/78 budget.
6. Subject to what the Governor and Mr Haddon-Cave have to say, the points in paragraphs 4 and 5 could be drawn upon in the discussions and illustrated, as appropriate, by the points in paragraph 3.
2 DECEMBER 1976
CONFIDENTIAL
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