718
PUBLIC RECORD OFFICE
Reference :-
PPPPLIC.O.882/11
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
272
7. I earnestly request that you will recede from the position you have taken up in this matter and represent to His Majesty's Government that is in the interests both of the Colony and of the good name of the Imperial Government that the Military Contribution should only be a liability on the revenue of the year in which it is levied and that no contributions from reserves which have already been liable shall be exacted.
8. I would merely add as a further argument that if 20 per cent. levy is to be made at the time that drawings are being made from the Fund, it would obviously be at a time when the Colony will be least able to bear the burden.
(The draft of this despatch was approved by Sir Hugh Clifford before his departure from Singapore on tour.)
C. 52138/28 [No. 13].
I have, &c.,
H. MARRIOTT, M.C.S..
Governor's Deputy.
No. 235.
STRAITS SETTLEMENTS.
THE SECRETARY OF STATE to THE OFFICER ADMINISTERING
(No. 551.) SIR,
THE GOVERNMENT.
[Answered by No. 240.]
Downing Street, 20th December, 1928.
I HAVE the honour to acknowledge the receipt of Sir Hugh Clifford's Confidential despatch of the 21st of April,* which need no longer be treated as Confidential, for- warding a copy of the report of the Committee on Opium Revenue Replacement and Taxation, which has received my careful consideration.
2.
As you are aware the Opium Revenue Replacement Reserve Fund was estab- lished as the result of the report of a previous Committee on the subject in 1925. It had been suggested that the large percentage of its revenue which the Straits Settle- ments Government, among others, derived from opium was an embarrassment to the Government in carrying out the policy of opium suppression to which it is committed by various international agreements. In order to free the Government from this embarrassment it was, therefore, decided to establish a fund which would tide over the financial difficulties of the transition period when the time came completely to abolish opium smoking. An initial contribution of 30 million dollars was made to the Fund and it was the intention that 1/10th of the revenue of the Colony should be contributed to the Fund each year in the future.
3. There has, however, been a growing feeling among unofficial opinion in the Colony that the 1925 Committee took an unnecessarily pessimistic view of the financial situation likely to arise from the suppression of opium smoking, and that the annual contribution of 1/10th of the revenue was an unnecessarily severe burden on the pre- sent generation, especially as the financial situation of the Colony was no longer sc good as it had been. This feeling became acute last year when the Unofficial Members of the Legislative Council unanimously opposed the inclusion of any contribution to the Fund in the 1928 Budget. In view of this opposition I agreed to the suspension of contribution for 1928, but suggested that in order to give some guidance in the framing of future policy, a Committee should be appointed to make fresh investigations of the financial situation, and the Committee whose report is now under consideration was accordingly appointed.
4. The Committee have come to the conclusion that the 1925 Committee were duly pessimistic as to the possibility of finding sufficient revenue to replace that derived from opium and also that the time when opium smoking will be completely abolished appears to become more and more remote. They, therefore, recommend that the Fund should be completely abolished and the money now in it transferred to general
Tevenue.
5. I wish to make it quite plain that I cannot agree, under any circumstances, to the complete abolition of the Fund. His Majesty's Government is pledged to secure the suppression of opium smoking in His Majesty's Far Eastern Denendencies within
* No. 233.
273
it period of 15 years from the date to be determined by a League of Nations Commission
when the smuggling of opium from the producing countries ceases to be a serious obstacle to the enforcement of restrictive measures. While the situation in China has not yet shown any great signs of improvement it is to be hoped that the Central Government of China will be strong enough effectually to suppress opium growing, and the Colonial Government must, therefore, be prepared for the eventuality of the complete cessation of its opium revenue at some future date.
6. Although I must, therefore, insist on the maintenance of the Reserve Fund, the perusal of the Committee's report has led me to consider whether is not already large enough for the purpose for which it was intended. The principal facts of the matter are that the Straits Settlements derive between 30 and 40 per cent. of their revenue from opium, and that this revenue will automatically cease upon the total suppression of opium smoking 15 years after a date dependent on the situation in the producing countries and to be fixed by the League of Nations. Until there is sufficient control over smuggling to render possible the enforcement of more direct restrictive measures, the policy which most effectually restricts the consumption of opium is its control by a Government Monopoly selling chandu at the highest price possible com- patible with successful competition with the smugglers. There is, therefore, no ques- tion of the total disappearance of the opium revenue before that time. The 1925 Com- mittee were disposed to think that it would be very difficult to replace the revenue now derived from opium, when the time comes, with revenue from any other source. I am disposed, however, to agree with the more recent Committee that, although it may be difficult, it will not be impossible to devise some alternative sources of revenue. The Colony will be at any rate no worse off when opium smoking ceases. The money now spent on opium will be diverted into other channels of expenditure, and it may be possible by means of indirect taxation in the form of licences, excise, &c., for the Colonial Government to take its toll of that expenditure as it now does of the expendi- ture on opium. If it is feared that indirect taxation will prove inadequate it may prove possible to surmount the difficulties of direct taxation. In any case it is to be expected that as the development of the great potential resources of the Malay Peninsula proceeds other sources of revenue may suggest themselves. The Reserve Fund, there- fore, will only be necessary to meet the initial period of difficulty while new sources of revenue are being established, and I do not anticipate that that period of difficulty will extend to more than a few years. I may say here that, in view of this, I that the capital as well as the income of the Fund should be available for use when agree the time comes.
7. The Colonial Government will have at least 15 years' notice before the opium revenue completely disappears. During the first years of that period, when steps for the suppression of smoking are being carried out, the revenue will decline but not with sudden incidence. Moreover, the investigations by the League of Nations will take some time, and this will enable the Government to have still further notice of its approaching financial difficulties. I anticipate, therefore, that if, as soon as it becomes obvious that the time is approaching when it will be possible to carry out the pledge to suppress opium smoking, immediate steps are taken to exploit other sources of revenue, by the time the opium revenue is seriously affected, these alterna- tive sources will be well established and the period of financial difficulty will, therefore, cover only a few years.
8. It is estimated that the Reserve Fund will amount on the 1st January, 1929, to $42,680,000. The annual net opium revenue is approximately 13 million dollars. The Fund, therefore, already exceeds 3 years' total opium revenue. If allowed to accumulate at compound interest the Fund should, therefore, be quite adequate in amount by the time the 15-year period commences. At present it does not appear likely that this period will commence for some time to come, but the position in this respect will probably be clearer after the Conference which is due, under the pro- visions of the Geneva Opium Agreement of 1925, to be held in 1929.
9. Besides the above considerations I have also had in mind the financial situation and prospects of the Straits Settlements. It is anticipated that the revenue for this year will be less than that of 1927, and the uncertain prospects of the two chief industries of Malaya cannot but exercise a depressing influence in the immediate future. At the same time as the revenue shows a tendency to decline expenditure continues to increase both because of normal increases in the administrative charges and because of new developments in social services such as public health and education, while the large sums which the Colonial Government quite properly continues to spend in the way of capital expenditure on public works continue to form a heavy burden on the Colonial finances.
سم
274
10. Bearing in mind all these considerations, while I cannot as previously stated agree to the abolition of the Fund or to the interest on it being in future credited to general revenue, I agree to your proposal to suspend further contributions until the position becomes clearer after the Conference due to be held in 1929.
C. 52188/28 [No. 14].
No. 236.
I have, &c.,
L. S. AMERY