The $130 million cannot however be regarded as by any means excessive in Hong Kong's case. Some part should be earmarked as a normal reserve against future contingencies and 890 millions being about six months expenditure at current rates should probably be regarded as a minimum for this purpose.
Up to 31st December, 1950, 850 millions have been used to meet Rehabilitation Loan terms in excess of the $50 million already raised by loan; and owing to the difficulty experienced by Hong Kong in raising loans locally (Government rates of interest are not sufficiently attractive to investors in present circumstances of Hong Kong), we suggested in our telegram No. 326 that some part of the excess loan expenditure should be charged off against the accumulated revenue surplus so as to reduce the latter to a more realistic figure. Other liabilities of the Colony were referred to in our telegram No. 326 which would justify in our view an increase in the rate of Income Tax in spite of the above surplus.
40 To sum up, in spite of the most welcome present prosperity of the Colony, it has still a long way to go before its finances can be said to be on a safe basis, and the existence of an accumulated surplus of $130 may tend at first sight to give the impression that the Colony is better off than it actually is. ·
Yours sincerely,
(Ga) H. P. Hatt
Hall
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