HKK 100/2
Sir Murray MacLehose
GBE KCMG KCVO
HONG KONG
LAGT
CONFIDENTIAL
REC
REGI
16 June 1977
17 JUN 1977
53
RE
HKK 100/2
51
€
HONG KONG: 1977 BUDGET
1. In your letter of 26 February you asked me to let you have any criticisms of the budget before submitting upwards. You will know that Philip saw me, Tom Duffy and Adrian Smith on 18 May when we had a lively discussion and since then our Standing Committee has also discussed the budget. It is in the light of both these exchanges that I make the following comments.
2. During my last visit you explained that the Hong Kong budget speech is not to be equated with the Chancellor of the Exchequer's budget. Philip's budget speech is in effect a financial statement of how the plans outlined in your annual LegCo speech, amended, as necessary, after debate in the Council are to be accomplished. In short, if critics are looking for the equivalent of the Chancellor of the Exchequer's speech they must take your LegCo speech and the Financial Secretary's budget speech together. We have all here taken the point. But the memory remains of Philip concluding the debate on the second reading of the Appropriation Bill 1976 by saying that the "proper role of the taxation system is to appropriate a suitable proportion of the community's resources for public expenditure and not in addition to pursue social justice or to try to manipulate the rate and pattern of economic growth" (para 36). Philip did not repeat this philosophy this year but his budget speech did not in our view relate sufficiently to your speech and show how the policies you had laid down will be achieved over a period of years. Nor did the budget speech seem to acknowledge that the budget is an instrument to achieve your basic objectives. The Secretary of State has recently endorsed the view that the budget should be seen as an instrument of economic policy, and I suggest that these points are worth bearing in mind for next time. We are, of course, conscious that Philip has to address himself to an audience in Hong Kong who are very concerned with the viability of your industry and whose investment decisions will be affected
CONFIDENTI AL
Page 45Page 46