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Confidential.
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the customs across the border being so disorganised that no drawback can be arranged. We must estimate on a basis of local consumption plus some moderate allowance for exports from duty paid stocks. If it happens, as has been the case during 1949/50, that unusually large quantities of dutiable articles which have paid local duty and on which no drawback is claimed, find their way across the border, we end the year with a very satisfactory surplus. Halpern knows all this as well as I do, but I am afraid only tries to make mischief.
Not content with trying to stir up strife before the Budget was introduced, he has produced the article to which I referred at the beginning of this letter. In it he states categorically that the proposal to raise the standard rate of earnings and profits tax has been shelved for the time being, in view of the strong opposition and the fact that it could only be forced through by the use of the official majority which would be undemocratic. He goes
on to inform his readers that
the deficit will be covered by the imposition of a business registration fee and further indirect taxation. He suggests a head tax and a stamp duty on gold sales contracts.
I went to some trouble in winding up the Budget Debate to explain exactly why a head tax would not work in Hong Kong. If a person refused or was unable to pay, he could not be imprisoned as this would cost more than the tax and there are no facilities such as exist in a comparatively undeveloped country for tax defaulters to work off their tax. The gold market is dead now even if one were optimistic enough to suppose that it would be possible to collect stamp duty on sales contracts.
I also made it perfectly clear in my final speech that the proposed business registration tax would not bring in anything like the additional 12 million required. I hinted that we might supplement receipts from this source by a modifi- cation of Government's original proposal for an increase in the standard rate of tax but I was not more specific as at that time we had not received the Secretary of State's approval to the compromise proposal outlined in our telegram No.335 of 30th March, 1950.
The statement that the current expenditure estimate is 11.6% higher than the revised estimate for 19/9/50 is also quite wrong. The figure quoted of 179,900,000 is the original estimate not the revised estimate and in my budget speech I gave the latter figure including the supplementary payment to the 31 Rehabilitation Loan Sinking Fund as $190,550,253.
This is a fair sample of the Review's present standard of accuracy but I do not propose to make any effort to correct their statements as the publication does not cut very much ice locally nowadays. Unfortunately, however, it will provide ammunition for some section of the press when the compromise proposals are intro- duced probably in a fortnight's time.
We are not altogether happy about Halpern's contacts and the Managing Director of the paper has suggested that when they finally get rid of him, he should not be given a visa to enable him to return here.
I hope to see you when I am in London for the question of our reinforcement contribution and would like to have a chat with you on one or two matters.
Yours sincerely,
(C.G.S. Follows).