CONFIDENTIAL
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unemployment benefit based on entitlement" (paragraph 10). It is, therefore, disappointing that "The Centrally Administered Voluntary Contributory Sickness, Injury and Death Benefit Scheme" proposed in the draft memorandum does not appear to contemplate unemployment benefits;
(b) The Costs of the Programme: My impression is that there are no financial constraints on what is proposed. The major innovatory scheme will be largely self-financing: examination of the financial implications of the remainder of the proposed social welfare programme shows welfare expenditure in real terms rising from HK$53 in 1978/9, to HK$177m in 1982/3 and this increase is well within the scope of present and projected central government finances. (There was a budget surplus of HK$900m in 1976/77 on top of a smaller surplus in 1975/76 - and I understand that, at current tax rates, significant surpluses are expected in the next three financial years);
(c) Other Aspects of the Benefit Scheme: The retirement
benefits appear to have been given a secondary rôle. The employers' contribution of 2% is unusually low (5% would be more suitable and usual judged by schemes elsewhere in the Far East) and it is, in any event, usual for employers' contributions to exceed those of employees;
(a) The Contributory Scheme: This is not to be introduced for a further 3 years, which seems too long a gestation period. It is not clear whether an employee's contributions
would be abated if he had to withdraw his contributions in an emergency (such as unemployment).
5. Clearly, the Governor foresees difficulties in getting these proposals through ExCo. The fact (which will be well-known) that the paper has been drafted by an official expert from the UK will probably make it even more difficult to overcome local distrust. While we should certainly draw to the Governor's attention what we
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CONFIDENTI AL