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gather that Mr. Chamberlain saw nothing to object to in the amount of the proposed maximum. This misappre- hension needed and received immediate correction, the Treasury being informed on the 1st February, 1896, that his letter was not intended to imply that he definitely

- While not wishing at ud. En- accepted the proposed maximum.

the present time to raise any objection to the proposal, einsure Nic Mr. Chamberlain desires to reserve to himself the liberty 2 in No. 75,

f further discussing it hereafter, should circumstances

in his opinion render it desirable to do so.”

With the concurrence of the Treasury and War Office A. 320,

in No. 70

a despatch dated the 31st of July, 1896, was sent to Ceylon, Enclosure enclosing a copy of a Straits Settlements Ordinance embodying the recommendations of the Committee, and suggesting that that Ordinance should be followed mutatis. Ind., En- mutundis. However, the fiovernor, by despatch of the closure in Hith October, pointed out that future railways might be No. 8. seriously prejudiced by having to pay 7 per cent, of their receipts before they began to make a profit. He proposed either to exclude from assessable revenues all future railways which did not pay 74 per cent. plus interest and sinking fund on the cost of construction, or to raise the 11 on all receipts, excluding railway percentage to receipts.

Sir West Ridgeway also took the point that the cost to the Colony under the new scheme would not be more than £113,437, and he hoped to be allowed to inform the Legislative Council that Her Majesty's Government had no intention of increasing the cost of the garrison in time of peace unless for the purpose of preserving internal order. Such an assurance would, he thought, greatly facilitate the smooth passage of the Ordinance.

closure in

Mr. Chamberlain was disposed to favour the second Ibid. proposal and to apply it to the Straits Settlements, but No. 80).

Ibid., En- the Treasury demurred to either alternative, pointing out that if railway revenue were excluded it would be hard to No. 81. justify the retention of receipts from other productive undertakings. The War Office suggested that the best Thid, way to settle the difficulty was to take only net receipts No. 82. from such undertakings as assessable: they added that no assurance as to the increase of cost of the garrison could

be given. As the Treasury raised further queries the

whole matter was again referred to the Committee, with a See No. 85. view to settling the question as far as Ceylon, Mauritius, and the Straits Settlements were concerned. having no railway, was not directly interested.

Hong Kong.

As this question of railway profits is important as regards the Straits Settlements, it will be advisable to alter the order in which the Colonies have been dealt I therefore come with, and to take Hong Kong last.

now to

(3) THE STRAITS SETTLEMENTS.

The letter from the Colonial Office of the 22nd of May, A. 353, 1895, which approved the report of the 1895 Committee, No. 101. forwarded a draft despatch to the Straits Settlements for the concurrence of the War Office. The Treasury, in a Ibid., En- long and pompous letter of the 14th of June, concurred closure in generally but wished to place the contribution at 18 per cent. instead of 17 per cent., saying that it would be easier to get Hong Kong to accept 17 per cent. if the Straits, which drew a distinction between municipal and general revenue, had to pay a higher rate; and in a

No. 102.

That."

Fin No] 1033.

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separate letter of the same date they forwarded a revised Enclosure draft despatch. This led to further correspondence, the Secretary of State deprecating the attitude adopted by My Lords, with the result that the Secretary of State achieved his object. The despatch as finally agreed to was sent on the 28th June, 1895: it reviewed the situation from early Brud.. Enclosure times; remarked that the Home Government could not in No. 107. admit that the 1866 arrangement had been unfairly strained, so long as the defence charges imposed no greater burden on revenue than they did at the time of transfer from India; fixed 17 per cent. of revenue as the contribution to the cost of the garrison, "the Colony "continuing to provide, as it always has done, any capital "expenditure required for lands and buildings, as well as ; explained "the charges for lodgings in lieu of barracks" that revenue meant gross receipts except the proceeds of land sales and premia on leases; and asked for a permanent Ordinance appropriating 17 per cent. of revenue, "thus removing what has been a much vexed

question from the arena of annual debate."

A. 402, Ibid.,

Enclosure

62

Correspondence as to the terms of the draft Ordinance followed during the months September, 1895, to February, in No. 116. 1896, the result of which is shown in a despatch to the Governor of the 7th February, 1896: capital expenditure for land and buildings was defined as covering expenditure for the construction of barracks, additions to barracks, or other buildings required for the garrison; the necessity for additional guns or fortifications would be a subject for special negotiation, though it was considered that the old arrangement, viz., that the Colony paid for works and the Home Government for armament, should be adopted; and the percentage should in no case exceed the cost of the garrison in any one year.

A. 616, Enclosure

in No. 121.

Ibid.,

Enclosure

The Ordinance was duly passed, but in September, 1896, the Governor raised the question of contribution on the proposed Singapore Railway. He said that only net earnings after defraying total cost of maintenance should in No. 122. be assessed to contribution; and that he had been advised that, if the War Office would not agree, the undertaking should be granted to a limited liability Company with the Government as predominant shareholder; thus the Colony would only pay 17 per cent. on its dividends from the Company.

A. 520, No. 82.

A. 456.

Para. 6.

Para, 11. Para. 14.

The War Office took the line that the only satisfactory way of settling the question would be to lay down the rule that only the net profits of such works as railways and other productive undertakings should be assessable to contribution; and the matter was referred to the Inter- Departmental Committee, which, on the 27th of March, 1897, furnished Section 13 of their report.

They took the line that there was great weight in the Ceylon and Straits Settlements contention, and advised "that only such portion of the railway receipts should "be included in the revenue as would, if the railway

**

were a commercial speculation, and allowing for the "interest on capital expenditure, be available for the

payment of dividend,

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"At the same time, as the present percentages were "fixed in view of the gross receipts from the railways, "such percentages should be correspondingly increased "to meet the proposed reduction, and guard the Imperial "Government froin loss."

For Ceylon they recommended an increased percentage of 94. Mauritius, they thought, should pay 5 per cent.

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And as to the Straits they remarked that all that was necessary was to apply their new rule as railways were Para. S. built.

Enclosure

The Secretary of State comeurred in the report of the A 520, Committer and 'om the 14th of May, 1897, he informed the Nu. Si Governor of Ceylon that 94 per cent. would be accepted in Su.. on the principle laid down by the Committee. A despatch Enclosure of the same date toll the Straits Settlements that the 2 Committee's proposals should be adopted and that the Defence Contribution Ordinance should be amended accordingly.

As to Mauritius a despatch, concurred in by the War A. 517. Office and Treasury, was sent on the 10th June, 1897, in Enclosure which the Governor was informed that the Hone Govern- in No. 192. ment was prepared to approve an arrangement similar to that which had been proposed for Ceylon provided that the various abatements from revenue which Mauritius had mado (see p. 10), were abolished and the percentage ruised to 54. Mauritius however, as is shown by the Ibid. En- Governor's despatch of 14th October, 1897, and enclosures, closures in insisted on placing the revenne from the Mare-aux-Vacons No. 16. and other waterworks in the same position as railway

revenue.

106.

The War Office reluctantly agreed to the amendment, id. No. and the Treasury submitted under protest, and subject to the understanding that the terms of the draft ordinance Ibid. No. should be altered so as to make it quite clear that the 107. Colony was not at liberty to deduct water-works expenses and loan charges in excess of receipts, from railway receipts, as the draft Bill apparently provided. The id Ordinance as finally passed by the Council of Government closure in carried out the proviso on which the Treasury had insisted, No. 111. is A. 520. Ceylon accepted the proposal for a percentage of V§ as shown by the Ordinance No. 2 of 1898,

(4) HƯNG KONG,

No. 91.

87.

of

Eu-

The contributions for 1894 and 1895 continued to be A. 354. paid at the rate of £10,000 a year pending the result of No8.85 ant Ibid. No. In May, 1895, the Secretary the Committee's labours. State submitted the draft despatch to the Governor for the 88." consideration of the two other Departments, and with slight modifications the despatch was sent on the 27th of Ibid. En- June. It informed the Colony that the contribution had closure in been fixed at 17 per cent. of revenue, to be paid in dollars, No. 91.

the revenue for the purpose of assessinent being taken, as

in the other cases, as gross receipts less the proceeds of land sales and premia on leases; and the Governor was

asked to introduce a permanent ordinance to give effect to this decision.

The unofficial members of Council were not altogether A. 148. satisfied and correspondence took place, between August,

1895, and December, 1896, before the matter was settled.

No. 92.

In the first instance, as appears from the enclosure to the Ibid. En- Governor's despatch of the 28th August, 1895, they closures in objected to paying the same percentage as the Straits, on the ground that Singapore had a municipality the revenue of which was not assessable: they asked for similar treatment, i.e., that certain items of revenue should be regarded as municipal in character and consequently excluded from assessable revenue, and they took exception to paying for barracks, &c., which had already been completed or were uearing completion, as to which they had not been consulted.

Pid. No.

92 and En- closure 2

in No. 92.

1. 246. No. 18. Enclosure.

A. 385. Enclosure

in No. 28.

A. 448. Enclosure

in No. 93.

Ihid, En- closure in

No. 100.

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The Governor, Sir William Robinson, sympathised with the unofficials as to "municipal" revenue and thought that if the Home Government gave way on the point, the would objections to paying for these "barrack services be dropped.

The Secretary of State sent the despatch to the War Office with a draft reply, on the 16th of October, in which he maintained that the conditions of the Straits Settlements and Hong Kong were very different, and refused to alter the percentage.

As to barrack services he observed that full warning had been given in 1890 that the Colony would have to pay part of the cost and that when in April, 1895, it was decided that the Colony should only pay one third of the total cost, the fact that some of the expendi ture had already been incurred was taken into account: otherwise the Home Government would have asked for more than one third.

The War Office and Treasury concurred in the draft, the latter characteristically observing that "My Lords do "not think they can improve upon the way in which this [ie, the defence of the percentage] "is done in the draft despatch." The despatch was sent off on the 1st of November, 1895.

The unofficials returned to the charge in a memorandum dated the 31st of March, which was forwarded in the Governor's despatch of the 21st of April, 1896.

They re-argued with, I think, much force that many services, e.g., police rates, water rates, lighting rates, and fire brigade rates were essentially municipal in character and should not therefore pay military contribution; they attacked the question of Post Office revenue as follows :— "The Post Office is an Imperial establishment, in fact if "not in name, and is also an international institution in "so far as it works in connexion with the Postal Union, "It has branches outside of the Colony in various ports in "China. It derives a revenue from them and defrays A large portion "certain expenditure on their account.

"of the Post Office revenue (so called) is collected on "account of the Imperial Government or of the Postal Union, and brings no profit to this Colony whatever. "Such moneys form no portion of the revenue of this "Colony, and enght to be thrown out of account, it is "submitted, in the calculation of the gross revenue "taxable for the military expenses."

Further they objected to various appropriations in aid being assessed, c.g., amounts recovered for gaol expenses, contribution from the Home Post Office, sick stoppages of the Police force, &c.; and to various refunds of revenue being counted in the gross revenue. Finally they protested against the taxation of revenue raised for the payment of loan charges.

The Governor supported the proposal that revenue spent on the Postal Service, i..., working expenses, should be deducted from the revenue for assessment and generally suggested that Her Majesty's Government should meet the views of the Council.

The Secretary of State however replied in June, 1896, Ibid. En- closure 2 in that he could not meet the wishes of the unofficial members, No. 100.

which, if accepted, would necessitate a revision of the Ibid. En- closure 1 in percentage. The Council then asked that the old system of a fixed payment of £40,000 should be reverted to, but this was refused; and eventually in December, 1896, the Council passed an ordinance fixing the percentage at 17, * in full return for the annual cost of the Imperial garrison

No. 101.