CO885-(11-12) — Page 44

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ཀག་།།

PUBLIC RECORD OFFICE

Reference :-

C.O.882/11

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PUBLIC RECORD OFFICE, LONDON

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3. The recommendations of the Committee appointed in 1925 were :—

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(a) that a reserve fund should be constituted to be called the Opium Revenue Replace- ment Reserve Fund and should be held by the Crown Agents for the Colonies on behalf of the Colony;

(6) that a sum of $20 million should be paid from the Currency Guarantee Fund into

the general revenue of the Colony;

(e) that a sum of $30 million should be appropriated as the nucleus of the Reserve

Fund;

(d) that an annual contribution equal to ten per cent. of the revenue should be made

to the Fund, and

(e) that the duties on liquor, tobacco, and petroleum should be increased.

4. We have carefully considered the report of the Committee and find that we disagree fundamentally with their conclusions.

5. Our criticisms are:-

(1) The creation of the Fund was a financial innovation of a startling nature for

which, so far as we know, no precedent exists.

(2) The conditions for which the Committee were endeavouring to make financial pro- vision were too remote, were highly problematical, and could not be visualized in proper perspective.

(3) The principle of accumulating funds year by year out of revenue for the benefit of future generations is bad economica. Our duty to posterity will be accomplished

if we are able to build up a Colony which is soundly administered and up to date in health conditions, education, policing, and ways of communication.

(4) It was apparently the intention of the Committee that only the income derived from the investments of the Fund should be used for the replacement of opium revenue. This we consider financially unsound. If a reserve fund had to be created, it should have been provided that both capital and interest of the fund should be used to supplement the revenue during the period when opium revenue decreased and new forms of taxation took its place.

(5) The Committee apparently anticipated that the increased duties which they recom- mended on liquor, tobacco, and petroleum, would make it possible for the Colony to continue to make contributions from revenue to the Fund. At the present time, it is no longer possible to make such contributions out of revenue without a reduc tion in expenditure or additional taxation.

(6) It is to be inferred from the figures given by the 1925 Committee that they antici. pated that the fifteen year period under the Convention might commence within five years of the date of their report. Since August, 1925, conditions in China have changed. China has become the arena of internal warfare and the situation there is such that it will probably be many years before any Government can effectively control China. Until there is such a Government, effective measures to prevent the exportation of raw opium from China cannot be taken and the fifteen year period in the Protocol cannot begin to run.

6. It is necessary also to refer to an announcement regarding the Opium Reserve Fund made by His Excellency the Governor in his address to Members of Council on 10th October, 1927. His Excellency's words are quoted below:-

"I am aware that apprehensions are entertained in certain quarters lest the possession of this financial nest-egg by the Colony should tempt the Imperial Government to seek to divert it, or some portion of it, to purposes other than those which the public of the Straits Settlements would regard as best adapted to its interests. I have accordingly approached the Secretary of State on this subject and, though theoretically it is not within his competence to bind his successors in this or in any similar matter, it will be recognized that a pledge given by one Secretary of State to the Legislature of a Colony on an important question of public policy is, in practice, little likely to be disregarded or set aside at any future time. I am authorized by the Secretary of State to announce that no part of the capital of the Opium Reserve Fund will be diverted from its original object. to any Imperial purpose or to any local purpose, without the consent of a majority of the Unofficial Members of this Council.5

We are convinced that, notwithstanding this announcement, there is still a wide- spread fear in existence in the minds of the public that at some future time the Opium Reserve Fund might be used, under instructions from the Imperial Government, for some purpose which would not be in accordance with the wishes of Unofficial Members of Council.

7. The objections to the Opium Reserve Fund have been set out in detail above. On the other hand, the Colony is faced by the undertaking given at the International Opium Convention of 1912 to "take measures for the gradual and effective suppression of the manufacture of, internal trade in, and use of prepared opium."

8. The position in the future of revenue from opium is, however, so nebulous. that it would be imprudent for the Colony to commit itself to a definite line of policy

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over a long period of time. After each new decision of the League of Nations and whenever any change of real importance in the opium situation occurs, the financial position should be reviewed by a new committee. In this portion of our report we confine ourselves therefore to recommendations of the financial measures which should be taken until the next opium conference meets in 1929.

9. We recommend that the sum now standing to the credit of the Opium Revenue Replacement Fund be transferred to revenue and that $40 million of the additional surplus so obtained be treated for the next two years as a part of the "Reserved" surplus of the Colony and not as part of the liquid surplus available for use. recommendation is approved, the effect on the statement of assets and liabilities in the 1928 Estimates will be that the amount of the Reserved surplus will be increased from $19 million to $59 million.

If this

10. The interest of about $1 million per annum on the investments which are now held by the Opium Revenue Replacement Fund will in the future be credited

to revenue.

11. No contribution from revenue should be made in 1929 to any reserve for replacement of opium revenue.

12.

We consider it difficult, if not impossible, to make any useful definite recom- mendations as to the forms of taxation which shoud be used to replace opium revenue at some indefinite date. The nature of the taxation must depend to a certain extent on the use which is made by opium-smokers of the very large sum which they now spend on the purchase of chandu.

13. We feel that we ought to point out the great importance to the Colony of having adequate representation at the Opium Conference in 1929, so that there may be no ground for any apprehension that the interests of the Colony will not be fully considered.

14. While we do not suggest that the Colony should discontinue such measures as are being taken or should not proceed with further measures with the object of reducing consumption of opium within its territory, we do not see how opium smoking can be completely suppressed before the production of opium is under effective control in all poppy-growing countries. Such a course of action would entail the creation of a Preventive Service of such dimensions that the finances of the Colony could not support it.

TAXATION.

15 We have next to consider whether an immediate increase of taxation is necessary.

16. Appendix A sets out the financial position of the Colony as shown by the statement of Assets and Liabilities in the 1928 Estimates. The liquid surplus is shown as only $3 million but will be increased to $16 million by the repayment in July, 1928, of a loan of $13 million to the Municipal Commissioners, Singapore. A further $5 million lent to the Municipal Commissioners, Penang, will be repaid in 1929, making a total liquid surplus of $22 million. There will then still remain a sum of about $15 million locked up in loans to the Harbour Board, the States of Kelantan and Trengganu, &c., &c. It appears to us that the Colony has ample funds to meet possible deficits in the Estimates during the next few years.

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17. Appendix B is a comparative statement of revenue and annually recurrent expenditure from 1922 onwards. In order to make an accurate comparison between revenue and expenditure, it would be necessary to add to the figures for annually recur- rent expenditure certain items amounting to a large sum under special expenditure and public works extraordinary for which provision has to be made in every budget, quite apart from large public works. The total so obtained might be termed the

normal annual expenditure of the Colony.

Normal annual expenditure has undoubtedly increased more rapidly than revenue and the Estimates for 1928 appear to indicate that the revenue for the year will be only slightly in excess of such expenditure. The only reliable figures on which a comparison can be based are, however, the actual expenditure and revenue of each year. These figures are only available up to the end of 1926, and it is only after 1926 that the figure for estimated annually recurrent expenditure began to approach that for We consider that it would be premature to impose further taxation at the

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revenue.

present time.

19. A comparison year by year of the revenue with the normal annual expendi- ture appears to us to be a matter of considerable importance, and we suggest that in