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present revenue surplus consists of £6 million; out of this she has further
to make provision for rehabilitation of war damage (on which most of those
available funds are already committed) and for large development and
replanning works arising out of the Abercrombie Report, for which it is also
hoped that she will receive some assistance under the Colonial Development
and Telfare Act.
The Governor was pressed to increase taxation in connection with the
Estimates of each of the last two financial years. He has argued (a)
that the present tax machine would be unable to cope with the greatly
increased scale of evasion that would be the result of increased rates and
the breakdown in machine might be so serious as to cause the total yield of
taxation to be even less than it was now. We returned to the charge on
this point. Hong Kong would prefer to finance some of its projects by loan,
but it is understood from the Treasury that there is little prospect of their
being given access to the London Loan Market. The response to an issue
already made of the Rehabilitation Loan in Hong Kong was disappointing.
The Chinese investor is not interested in a return of 3 or 4 on his money,
and even if Income Tax rates were doubled and a full yield resulted, this
would only provide an additional £2 million per annum.
So long as public opinion in Hong Kong considers that H.M.G. have not
willingly dealt fairly withher, she is, it is to be feared, unlikely to submit(to
increased taxation, the proceeds of which in her view would merely justify
the Treasury (a) in requiring Hong Kong to meet certain liabilities which
Hong Kong considers are properly those of H.M.G. or (b) in demanding that
Hong Kong should meet a substantial part of the expenditure for the troops
now placed there, which they feel they can reasonably claim to be largely an
Imperial liability in meeting the world communist threat.
Finally if Hong Kong is going to be given a more advanced constitution
with an unofficial majority, it is even less likely that she will be willing
to submit to increased taxation except to meet expenditure which she herself
can be persuaded to consider desirable.