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provide a Fund which would yield a minimum revenue of $1 million per annum in 1945 in which year it was assumed the opium revenue would disappear. The Fund necessary to provide this yield at 4 per cent. interest per annum (the rate on which the Fund was calculated) is $25 millions. It is obvious therefore that to build up a fund on these lines involves locking up a large sum of money for a very long and indefinite period.
2. I do not think it is either necessary or desirable to do so. For one thing it is not improbable that there will be some compensatory advantage to be obtained from the disappearance of the opium habit whether in the shape of increased yields from other existing forms of taxation (e.g., duties on liquors and tobacco) or in the increased ability of the community to bear heavier financial burdens. If this anticipa- tion is realized, the need for a fund which will yield an income in perpetuity therefore becomes less urgent. For another a large portion of such a fund will be invested in British Colonial Securities to be used, for development purposes in other Colonies: there will be ample scope in Johore in the future for the similar employment of any monies available.
3. For the purpose of what follows it is necessary to recall here that it has become customary to regard opium revenue as something apart from the normal revenue of the State. As a result, when preparing the annual Estimates of Revenue and Expenditure, we now endeavour to secure that the revenue from sources other than opium balances what may be termed the annually recurrent expenditure (i.e.. all expenditure exclusive of Special Services, Public Works Department). So long as this object is achieved, therefore, the opium revenue becomes part of our surplus and available for capital expenditure.
4. Provided the yearly balance between revenue from other sources and annual recurrent expenditure can be maintained, I suggest that all that we ought to provide in the shape of an Opium Reserve Fund is a fund which will maintain the opium revenue at a certain minimum during the 15 years' period when that form of revenue will begin to diminish and finally disappear in accordance with the dictates of The Hague Convention. In this way we shall be assured of having a definite minimum sum available for capital expenditure throughout that period.
5. The minimum to be aimed at I take as $2 millions per annum. This is the net balance ayailable from the opium revenue at the present time if we accept the normal amount of that revenue as $4 millions per annum (in my opinion quite a safe figure) and deduct the present rate of contribution to the existing Opium Reserve Fund, viz., $1 millions per annum.
6. The date from which the 15 years' period, imposed by The Hague Convention, has to run, has not yet been fixed, but there are indications that it may be fixed in the near future. If we assume the date to be 1st January, 1929, and if we also assume that the diminution of the opium revenue will take place at a uniform rate throughout the 15 years' period, then from a normal opium revenue of $4 millions in 1928, it will decrease in arithmetical progression at the rate of $14 million a year, i.e., the actual revenue from sales of opium in 1929 is assumed to be $3 millions, $34 millions in 1930, and so on until it diminishes to $1 million in 1943 and finally disappears in 1944.
Now if we diminish the present fixed annual rate of contribution to the Opium Reserve, viz., $11 millions at the same rate then the contribution for 1929 will be $1 million, $4 million for 1930, $4 million for 1931, $1 million for 1932, and nil in 1933 leaving the net opium revenue for the years 1929-33 at $24 millions.
7. On 31st December, 1928, the existing Opium Reserve Fund will exceed $9 millions in amount all invested in Sterling Securities yielding round about 44 per cent. interest per annum. If we add contributions at the rate mentioned above, viz., declining from $1 million in 1929 to $1 million in 1932, I calculate on the basis of interest at 4 per cent. per annum payable half-yearly that we can in this way secure a fund which will provide $4 million in 1934, $4 million in 1935, $ million in 1936, and so on until 1943 in order to maintain the opium revenue at the postnated minimum of $2 millions per annum. Appendix A shows how the scheme operates.
8. If the date when the 15 years' period begins to run is postponed till later than 1st January, 1929, this will increase the maximum amount of a Fund built up on these lines, and it will be possible either to maintain the minimum opium revenue for a correspondingly longer period.or to increase the annual amount available for capital expenditure.
9. To sum up, what I suggest as the policy to be pursued in regard to this Fund is that we only make provision on the lines suggested for a fund with a definite life, that life to coincide with the period within which the opium revenue will disappear. We,
277
shall thus be assured of a minimum surplus available for development purposes during that time, while the fiscal policy of the State is being adjusted to meet the new situation. Nothing more, in my opinion is necessary.
Year.
1930
Surplus available
diture.
Contribution for Capital Expen-
Appendix A.
Actual Opium Revenue.
to the Fund.
1928 (normal year)
4,000,000
1,250,000
2,750,000
1929
3,750,000
1,000,000
2,750,000
3,500,000
750,000
2,750,000
1931
3,250,000
500,000
2,750,000
1932
3,000,000
250,000
2,750,000
1933
2,750,000
2,750,000
Taken from the Fund.
1934
2,500,000
250,000
2,750,000
1935
2,250,000
500,000
2,750,000
1936
2,000,000
750,000
2,750,000
1937
1,750,000
1,000,000
2,750,000
1938
1,500,000
1,250,000
2,750,000
1939
1,250,000
1,500,000
2,750,000
1940
1,000,000
1,750,000
2,750,000
1941
750,000
2,000,000
2,750,000
1942
500,000
2,250,000
2,750,000
1943
250,000
2,500,000
2,750,000
There will be a surplus over and above which should be treated as part of the
ordinary Surplus Funds in 1944.
C. 62382/29 [No. 2].
No. 238.
UNFEDERATED MALAY STATES.
THE SECRETARY OF STATE to THE HIGH COMMISSIONER.
(No. 11.)
[Answered by Nos. 239 and 242.]
SIR,
Downing Street, 23rd April, 1929. I HAVE the honour to acknowledge the receipt of your despatch No. 37 of the 20th of March,* on the subject of the Opium Revenue Replacement Fund in Johore, and to inform you that I approve your action in assenting to the Financial Commis- sioner's proposals for altering the rate of contribution to the Fund. As regards the method of utilizing the Fund I agree, as already stated in my Straits Settlements despatch No. 551 of the 20th of December,† with the principle that the capital and not only the income of the Fund should be available for use, but it is hardly yet possible to predict the exact manner in which the Fund will have to be used to supple- ment the declining opium revenue when the 15-year period commences, and this question should be further considered when the necessity arises.
2. As regards the other Unfederated Malay States, I observe that in the case of. Brunei it was stated in the enclosure to Sir Laurence Guillemard's despatch of the 25th of Novembert that, after 1927, the whole of the opium revenue would be ear- marked towards the Replacement Fund. Contributions to the Fund have never in fact been on this scale, and in the financial circumstances of Brunei, I agree that such large contributions would be excessive. I should be glad, however, to be informed, in case inquiry is made on the subject, what is the basis of the contributions which are being made towards the Fund in Brunei.
I have, &c.,
L. S. AMERY
* No. 237.
† No. 235.
‡ No. 215.
720
PUBLIC RECORD OFFICE
Reference :--
HC.O.882/11
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO