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PUBLIC RECORD OFFICE
Reference :-
EPEC.O. 882/11
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
PUBLIC RECORD OFFICE, LONDON
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have been proved correct. Ministers also, whatever they may say in public, will in private claim to have ?delivered first effective blow at the most unpopular feature of the new Constitution, namely, reservation by the Secretary of State of control over salaries and conditions of service. They argue that as in this case so in the future the Secretary of State will be compelled to yield to any demand made by large majority of the State Council and will only use safeguarding power in small matters over which opinion is divided. To give way, therefore, would be to surrender important principle of Constitution. If you accept my view I suggest that you reply to Ministers on the following lines. Your views on merits of the passage question remain unchanged. You will not authorize me to alter the existing Regulations, and should provision in the Budget prove insufficient to provide passages for the whole year in accordance with those Regulations you will instruct me to secure additional provision at the proper time. You fully realize difficulty that is being experienced in balancing the Budget and still greater difficulty that will be experienced next year, and you are confident that all possible avenues of retrenchment, including reduction in establishment, will be fully explored. Curtailment of reasonable privileges is merely one method of reducing effective emoluments and you regard any reduction in emoluments which, even with reduced cost of living, are barely adequate not as means of retrenchment but as method of raising revenue from one class only. Proper method of adopting this course when driven thereto by sheer financial need is a definite temporary levy on salaries, and not a whittling down of privileges which can have no appreciable effect on the financial situation.
Further telegram regarding cut in salaries will follow and I suggest that you await arrival before replying to the Ministers.
C. 83227/31 [No. 16].
No. 39.
THE GOVERNOR to THE SECRETARY OF STATE. (Received 1.20 a.m., 15th October, 1931.)
TELEGRAM.
[Answered by No. 43.]
No. 214. 14TH OCTOBER. Confidential. Your telegram of the 3rd October, No. 186. Last portion. Predominant feature of debate on the second reading of the Budget has been the almost unanimous demand, joined in by the European gap of rupees 16,500,000 Members, for immediate cut in salaries. Estimates show between revenue and expenditure after cutting the latter down drastically. It was proposed to bridge the gap by taking 10,000,000 from surplus balance (estimated at 17,000,000) 4,000,000 from loan to be raised to repay into revenue sums lent in the past to local bodies, and 2,500,000 general saving on Votes. In introducing Appro- priation Bill, Leader of the State Council indicated that for the purpose of raising considerable additional revenue which will be necessary in 1932-33 Board of Ministers were considering three measures (a) increase in customs duties, (b) levy on salaries, (c) income tax. He added that if income tax were to be effective in 1932-33 it must be introduced as soon as possible after the Budget, and that it might be necessary to have recourse to either or both of the other two methods in order to raise additional revenue in 1931-32. Majority of Ministers were at first quite prepared to postpone consideration of levy on salaries until after the Income Tax Bill had been passed and customs duties raised. Board was, however, always divided and all have now suc- cumbed to the demand of the State Council. Board has, therefore, expressed desire, as soon as possible after the passing of the Budget, to introduce measure imposing levy on salaries and has asked for my sanction under Article 87 (1) of the Order in Council. I understand intention to be to introduce the Income Tax Bill concurrently with this measure. I judged it inexpedient to withhold the required sanction and was confirmed in this view by the last paragraph of your telegram under reference. I accordingly replied on the 9th October that I was prepared to accord my sanction without thereby committing myself to advising you to approve the measure in question. At the same time I drew the attention of the Board to your views on cuts in salaries as expressed in your telegram under reference. At the time of writing that letter I felt convinced that at the beginning of the next financial year, taking into account
* No. 36.
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revenue to be expected from income tax, and such increase in customs duties as I should consider reasonable, first condition precedent to cut in salaries mentioned in your telegram would have been fulfilled. As regards the second condition, although salaries were fixed in 1921 when the cost of living was considerably higher than now they were not adjusted to the level of prices then prevailing, as the Wood-Renton Commission foresaw and made allowance for considerable fall in the cost of living. A reasonable cut in salaries will, I consider, leave all except the lowest paid Ceylonese officers with sufficient to maintain adequate standard of living, but would undoubtedly entail severe hardship to the lowest paid Ceylonese and to European officers with children being educated in England. Second condition is. therefore, already partly fulilled, but cannot be wholly fulfilled unless there is further fall both in the cost of living of Europeans in Ceylon and in the cost of educating and maintaining children in England. Nevertheless, while I feel that cut in salaries could and should be postponed until the beginning of the next financial year I consider that it would then become inevitable. On the 12th October Financial Secretary informed me that he had been obliged, as result of the latest revenue figures, to reduce estimate of surplus balance on the 1st October, 1931, by 2,000,000 and of the probable revenue for 1931-32 by 3,000,000. This places beyond doubt the necessity for cut in salaries at the beginning of 1932-33, and especially if it will not be possible to raise projected loan of 4,000,000, vide third paragraph of your Circular despatch of the 19th September.* and makes it not improbable that even with considerable increase in customs duties, cut in salaries will be necessary at some period in the present financial year unless surplus balances are to be depleted to extent which I could not recommend. Any considerable increase in customs duties must involve increase in duties on neces- sities, and it is beyond doubt that the State Council will refuse this unless demand for cut in salaries is acceded to. Position may be summarized as follows:-Cut in salaries will be necessary to balance next year's Budget. It can only be avoided before then by the use of reserve power both to veto measure for cut in salaries and to secure adequate increase in customs duties. Such action following on action which I have proposed in the case of the Passages Vote would inevitably result in the resigna- tion of the Board of Ministers, dissolution of the Council and almost certainly in boycott of the election. Even if election were held Members would be returned with definite mandate to secure reversal of your decision on all three points and breakdown of Constitution would follow. Question at issue is, therefore, whether it is justifiable to wreck the Constitution in order to postpone cut in salaries, which I regard as in- evitable at the beginning of 1932-33, if not earlier. I can only answer the question in the negative, and I, therefore, consider immediate passage of measure imposing temporary levy on salaries (which will not affect pension rights) to he inevitable. I suggest that measure should take effect within reasonable period (say, three months) after passage, and I further consider it most desirable, in order to emphasize reten- tion of control by the Secretary of State and the Governor over the rights of public servants, that the terms of the measure should be framed by me (subject to your approval of course) and not by the Board of Ministers who would, however, be con- sulted. I, therefore, propose that you should authorize me to inform the Board of Ministers that after careful consideration of the financial situation you are of the opinion (a) that immediate introduction of income tax is necessary, (b) immediate steps must be taken to secure such increased revenue from customs duties as may be practicable, (c) imposition of temporary levy on salaries commencing current financial year is justified by the financial condition of the Island. You have, therefore, instructed provided that I can obtain an undertaking from the Board of Ministers in regard to (a) and (b), to prepare and submit for your prior approval a measure imposing I have secured adjournment of the temporary levy on salaries of public servants. Budget debate until the 27th October, and request that I may receive your instructions not later than the 23rd October.
me,
* Not reprinted.
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