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but I am not aware that any land sales have have taken place, or are likely to take place, this year, as since the date of the preparation of the Estimates the Surveyor-General has reported the sale of the last lot within reasonable distance from Victoria on the Hong Kong side of the harbour to have taken place, so that no receipts under the head of premiums can be anticipated for this year; and after carefully going over, and straining to the utmost, every item of revenue in the Estimates for the present year, and comparing them with the actual receipts for last year now known-I cannot, after adding 2,000l. to the item of postages, which appears underrated, make out a larger probable fixed revenue than 105,0007.
5. I have not overlooked the fact that the increase in what I have termed the permanent revenue has been at the rate of about 12,000l. per annum for the last four years, but this has arisen in a great measure from exceptional causes which no longer exist. The increase in the "rents" ceases with the sales. The opium monopoly has for the present I think almost reached its limits. The police rates are limited by law to the police expenditure, which was fixed last year by ordinance upon a new and extended basis which will not require immediate alteration. And the postal receipts an item but recently brought to account-is more a nominal than a real increase, being caused by the transfer to the colony of the local post office, which brings with an increase in the revenue the expenses of a large establishment.
6. In estimating the permanent revenue I have not taken into account the possible sale of lands in Kowloon, as, even if the questions connected with the appropriation of that Peninsula are settled in a way more favourable to the colony than at present appears probable, the acquisition could not be made remunerative for several years. If the Government sells land there a con- current outlay must be made for police stations and other Government buildings, piers, roads, streets, bridges and drains, which will exceed any sums that can possibly be received for premium on land sales for some years, but which must nevertheless be undertaken by Government if the land is to be sold at all. I therefore leave Kowloon out of both sides of the present calculation.
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7. And here I may notice an error into which I think you have fallen in your letter upon the subject of public works, and which apears to me to spring from a want of appreciation of the exceptional character of Hong Kong. You state that the Duke of Newcastle has directed you to bring to my notice the large expenditure which has taken place during 1860-2 on public works "because although there is no better way of disposing of surplus revenue than on works of public utility, the amount of that expenditure is in a great degree regulated by the amount of surplus revenue of which it in some degree thus furnishes a measure: in other words, I apprehend, that public works are undertaken because there is a surplus, which, however, if necessary would be available for other purposes. This may be the case in a great measure in colonies which have been long established, and in which the development of wealth and population is gradual, but it is not so in Hong Kong. There the population has nearly doubled in four years, and although this increase has brought no doubt an annual addition to the revenue, it has necessarily involved a large and immediate capital outlay in public works. If British institutions are not to fall into disrepute, the enlargement of gaols, Courts of Justice, police, and consequently police stations, hospitals, schools, markets, and other Government establishments must keep pace with the growth of the population. Such outlay is not therefore as your argument assumes optional, and large as it has been in Hong Kong of late I do not hesitate to state that it has not been as large as it should have been solely in consequence of the inability of the Surveyor-General's Department, although largely reinforced, to get through the additions as fast as they have been required. Again, an increase in the population leads to an increase in sales of land, and consequently to a large addition under the head of premiums. But sales of land render it neces- sary for the Government to undertake roads, streets, bridges, general drainage, public piers, and other works without which the land either would not sell, or would produce comparatively nothing. So far then from the recent expendi-
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