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counsel was that, subject to two provisos of which I will make mention later, there should be as little disturbance as possible with the Colony's current activities and developmental schemes, so long as revenue to finance them would be forthcoming. In particular the desire was expressed that existing social services and approved plans for their extension should continue as far as was possible; furthermore any inarked retrenchment in the Civil Service was deprecated unless and until we were advised by him so to act.
It will be agreed, I think, that this confident policy, which unquestionably reflects that of His Majesty's Government, is very enheartening at such a time as the present.
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The Secretary of State's two provisos, which I mentioned just now as being conditions to be observed in framing the estimates, dealt with the following points. Firstly, the great importance of conserving the exchange resources of Great Britain through control over the purchase and export of foreign currencies and of those British currencies which are not on a sterling footing. Hong Kong's precedure in this respect, it was found, could not be quite on all fours with that of other British Colonies because of the predominating importance of our entrepot trade, and special treatment of the problem was therefore permitted to us. I have asked the Honourable the Financial Secretary to give the Council a connected account of the measures taken by Government with this end in view, and I myself shall have a further word to say on this subject when speaking of the revenue estimates. The second point on which the Secretary of State expressed a proviso was the avoidance of expenditure which, by creating a demand for unessential goods would deflect men, materials and shipping from war purposes. In this connexion I may say that had already given orders that work on my successor's new house should be stopped before this wise advice was received!
So much for the expenditure estimates in the ordinary budget, which will be more fully explained by the Honourable the Financial Secretary in his speech this afternoon and in the memorandum prepared by him. On the Revenue side there are considerable alterations to be made, but these do not appear in the printed volume. The most important of them are the increases in duties on petrol and alcoholic liquors which have a dual purpose, viz., to raise more revenue and to effectuate the policy of conserving sterling exchange the other implement certain recommendations of the Taxation Committee and I will leave it to my Honourable friend to state their nature,
The estimated financial outcome of what I have called the ordinary budget is a small surplus. That expectation is due partly to the additional revenue from the sources just mentioned and partly to the transfer of certain appropriate expenses to the defence budget. If, however, during the fifteen month period which the estimates cover it appears that a deficit is probable it should not be difficult to curtail expenditure, and especially capital expenditure, sufficiently to avoid that result.
I come now to the defence budget, by means of which Hong Kong will make its contribution towards the prosecution of the war against Germany. That contribu- tion may take one of two forms, the first being the meeting from our own pockets of such additional local expenditure as the situation may demand for volunteer naval, military and air defences and other war services; the other, free gifts in cash or in kind to His Majesty's Government towards its aim viz. the defeat of the enemy. The former of these has its natural limitations and not wide ones at that but I trust that not only every member of this House but also every citizen of this Colony will agree that there should be no limit upon the aid that we should give to His Majesty's Government other than our ultimate ability to pay. Quite obviously in this lightly taxed community that limit lies at a great distance and could not be reached through existing revenue channels. It is therefore necessary to create new means and Government has decided that an Income Tax is by far the most suitable. Steps will therefore be taken at once to draft the necessary legislation and to bring into being the necessary machinery. My hope is that within six months that machinery will be at work. Plans are not far enough advanced as yet for any detailed descrip- tion, but in order to prevent unnecessary alarm I will say that it is not intended at the initial stage to prescribe very high rates of tax.
Attention has also been given to the question of taxing Excess Profits. There may plainly be justification for such a measure in due course, but I feel and I know that my Honourable friend agrees with me that we had better tackle the Income Tax problem first and, when that has been done, take up again the matter of Excess Profits Duty.
HONOURABLE MEMBERS,
This address is, of course, intended to do no more than outline the principles in accordance with which this Colony's financial policy for the near future is being framed and the Honourable the Financial Secretary will, this afternoon, explain the Government's proposals in ampler measure. I have tried to put before you the twofold duty which rests upon this Legislature at this juncture. On the one hand we are responsible for the proper care, a phrase which includes improvement, of this small but important part of His Majesty's Empire and it is especially incumbent upon us to maintain and, as far as we can extend, the Colony's social services, particularly public health and education you will find increased provision in the ordinary budget under both those heads. On the other hand it is our duty as well as in our interest to give all that we can to help His Majesty's Government in the great struggle in which the Empire is engaged. The task of this Government is to find the right balance between these two duties and I confidently hope that you will find your- selves able to endorse the proposals that are now about to come before you. I do not wish to be thought to make light of the burden which they will lay upon the shoulders of the taxpayers of Hong Kong. The Income Tax, even at the relatively low basic rate of two shillings in the pound, must inevitably give a shock to the social and commercial structures of the Colony, and considerable adjustment will be necessary in order to absorb that shock. Nevertheless I am fully confident that they will no more shirk their duty where their money is concerned than they have in offering their services, and if necessary their lives, in Britain's cause.
I now commend the business of the meeting to your consideration.
12th October, 1939.
G. A. S. NORTHCOTE, Governor.
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