}
doing what he can, but radical action on these lines cannot be taken immediately. On the revenue side, the Governor gives reasons why he does not advocate an immediate increase of income tax (or Earnings and Brofits Taxes, which is the Hong Kong equivalent). I think we have persuaded the Treasury that these reasons must be respected. Staff for collecting this tax is still extremely inadequate, and in the circumstances it is fortunate that collection has been so good and that evasion has been so slight. If. however, the tax were increased with the present. lack of personnel to administer it, there is no doubt that evasion would become widespread, that the tax would fall into disrepute and that the overall results would be thoroughly undesirable. Every effort is being made to procure the necessary staff, and as soon as it is obtained further increases in direct taxation will be forthwith considered.
In the meanwhile, it remains true that there is a great deal of untaxed money going about in Hong Kong, and that this is helping to increase the intense local inflation as well as denying the Government an unique opportunity to build up really substantial reserves against a possible diminishing of trade. We are discussing with the Treasury what other taxes we can encourage the Governor to impose, and it may be that we shall recommend, e.g., a purchase tax of luxuries. The trouble about such taxes, in the particular circumstances of Hong Kong's prosperity, seems to be that they may kill the goose that lays the golden eggs; but that, of course, is not a reason against considering them very seriously. There is also the possibility that Hong Kong may be able to do more by way of raising local loans, but prospects are not particularly encouraging, and the reason for this is probably to be found in the counter-attraction of very high local mortgage rates. $50 millions have so far been raised largely from the Banks, and it is said that another $20 millions is likely to be the limit in the near future.
Nevertheless, the need for bringing in more money remains, and the money is there to be brought in. In this connection, the suggestion has been put forward that a State Lottery should be instituted in Hong Kong, and the initial Treasury reaction is not unfavourable. The present position as regards State Lotteries in the Colonial Empire is that one has been in operation in Malta for many years and another has just been introduced in Gibraltar. The Secretary of State said in reply to a question in Parliament last year (the papers are at present in circulation) that he did not favour the introduction of State Lotteries in the Colonies as a general rule, but that he was prepared to consider individual cases submitted to him. The general objections are obvious. Lotteries are held to be an uncertain source of revenue, and to encourage local populations into the belief that their financial problems have been solved without recourse to more realistic and drastic measures. Moreover, on moral grounds State Lotteries are
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