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estimates to be undertaken by a Committee consisting of the Colonial Secretary, the Controller of Revenue, and the Colonial Treasurer. This year I presided over the Committee personally. We subjected all the estimates to detailed scrutiny in consulta- tion with the Heads of the respective Departments, and we effected such reductions as seemed practicable within the limits of settled policy. The principles on which we proceeded were explained in my address to the Legislative Council. `Of that address, The Budget was which was delivered on the 4th July, I have sent you a copy. introduced by the Acting Colonial Secretary in the afternoon of that day. I enclose a copy of the uncorrected Hansard report of the proceedings in which his speech is included, and a copy of the Estimates as laid before the Council.

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6. In the light of the contents of these documents Your Lordship will be in a position to judge whether it was unreasonable of the Government to make immediate provision for a small increase of revenue, sufficient at any rate to cover the service of the first instalment of the proposed loan. We thought it not improbable that we might be asked to wait and see whether an exhaustive review of the whole position by the Legislative Council might not result in the discovery of some sovereign remedy of innocuous taxation or innocuous retrenchment, but we felt that the time had come when any such plea for procrastination must be firmly resisted, and that the exhaustive review, of which we fully recognise the necessity, would be likely to prove dilatory and inconclusive unless the consideration of the problem were brought down promptly We were from the realms of abstract dialectics to the sphere of concrete action. not, however, able to submit forthwith any exhaustive or even far-reaching proposals. We thought it right that the whole position should be reviewed in consultation with the Unofficial Members before any important variations of policy were considered, especially in matters upon which the Government had given pledges to the Council. We were not, and are not, aware how and to what extent the attitude of the Unofficial Members in regard to some prospective items of expenditure, such for example as the University Scheme, might be affected if it were appreciated that their immediate adoption would involve increased taxation. Nor could we attempt to under- take a general revision of our present taxation until we were enabled to gauge the probable incidence and effect of the contemplated income tax. In conformity with the recommendation of the Taxation Commission, which was appointed at the instance of the Unofficial Members, the services of an expert have been secured to advise us in regard to the formulation of a scheme for that tax, but he will not arrive in the Island before September. In these circumstances we decided that, while the imposition of some additional taxation had become an urgent necessity, the amount thus to be raised in the first instance should be limited provisionally to a relatively small sum; that the new taxation should be capable of collection without additional administrative expenditure; and that it should be such as would not cause any serious dislocation of trade either by its imposition or by its eventual removal, if a subsequent general revision of taxation were to render its retention undesirable. A small general sur- charge on all the Customs duties on imports, supplemented by a small increase in the postage rates on inland letters and postcards, seemed to us to meet these requirements, and I gave notice of both these increases in my address to the Council on the 4th July. The increased postal rates are not to take effect until the 1st October. For obvious reasons any change in the Customs tariff had to be brought into operation as soon as notice of it had been given. The usual Provisional Order in terms of the Public Revenue Protection Ordinance of 1921 was issued by me in Executive Council, and the increased duties were collected as from the morning of the 5th July.

7. In my address to the Council I stated explicitly that I attached importance

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"

very great

to these proposals. The Council sat in the afternoon of the 4th July for The Resolution for the the introduction of the Budget and for other business. imposition of the increased Customs duties was introduced in the afternoon of the 5th July. In the meantime the Unofficial Members had given me no intimation what- ever of an intention to reject the Resolution. They did not ask for an interview, and they made no representations in writing. They gave me no opportunity of con- sidering whether, by postponement of the debate or otherwise, any possibility of mutual accommodation might be explored. The speeches which they delivered after the Resolution had been moved are before you. I was apprised of their purport and of the probable issue of the debate while it was proceeding. Before giving my instructions to the Acting Colonial Secretary, I sent for the Attorney-General and discussed the legal position with him. It was clear that, if I thought it necessary to maintain the increased duties, I should have to declare the Resolution to be of

*No reprinted.

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paramount importance either before a majority of the members had voted against it or immediately afterwards, as the rejection of the Resolution would have invalidated the Provisional Order under which the increased duties were actually being collected, and it was unthinkable that duties imposed in the morning and cancelled in the evening should be reimposed a few days later. I had on the previous day informed the Council that I attached very great importance to this proposal, and I thought it desirable therefore that any further declaration should await the result of the division. It did not seem to me courteous to intervene with what would have been regarded as an explicit threat before the division had been taken. There was a possibility that some of the members would have been content with registering their protest and would have abstained from going to the length of voting against the proposal. In the result, however, the twelve Official Members voted for the Resolution and twenty-seven Unofficial Members voted against it. It was forthwith declared to be of paramount importance, and the Council suspended its proceedings for the tea interval. After the tea interval, the adjournment of the Council was moved by an Unofficial Member, but the Motion was rejected by 18 votes to 17. Seven Unofficial' Members voted in the majority, which would have been larger by one vote, if the Brigadier Commanding the Troops had not left the Council under the impression that no further contentious business was likely to come forward that evening. After the motion for the adjourn- ment had been lost, most of the members who had voted in the minority walked out of the Chamber.

8. I regret to find myself at variance with the Unofficial Members, but I still think that the course which I adopted was necessary in the interests of the country. I need hardly emphasise that in this matter I had not, and could not have had, any other interests to serve. I have read the speeches of the Unofficial Members very carefully, and my opinion remains unchanged. I am wholly unconvinced that the very slight increase of the import duties, as for example the surcharge of 5 cents per hundredweight of rice, will add seriously to the cost of living. No doubt, any taxation tends to raise the cost of living in one form or another, and I should not have desired to increase taxation, however slightly, if the financial position had been less unpro- pitious. The additional taxation which has been imposed will not nearly suffice to provide for a balanced budget for 1929-30, unless some device is adopted which will I am not at liberty under the result in a very much aggravated situation next year. present Constitution to delegate my responsibility to the Legislative Council. I await with interest any suggestions which the Unofficial Members may put forward in regard to the Budget, and I shall be very ready to give them the most careful consideration. But until they have been framed and submitted, it is impossible to predict that they will render the retention of the increased duties unnecessary. If and when those cluties In the meanwhile I wouldī are found to be unnecessary, they can be removed. venture to suggest that they should be retained. In considering the constitutional point which is raised in the last paragraph of the letter of the Unofficial Members, Your Lordship will doubtless not overlook the aspect of it which affects the functions of the Government.

I have. &c.,

SIR,

Enclosure 2 in No. 66.

HI. J. STANLEY,

Governor.

Colombo, 11th July, 1929. We desire to submit in terms of paragraph LV (2) of the Ceylon (Legislative Council) Order in Council, 1923, as amended by the Order in Council, 1924, our objections to the declaration made by the Honourable the Acting Colonial Secretary, purporting to act by Your Excellency's authority and on Your Excellency's instruc- tions, at the meeting of the Legislative Council held on the 5th July, 1929, that resolution, viz. :-

"The Customs duty at present leviable on goods, wares or merchandise imported into the Island shall be increased by an addition thereto of one-twentieth of such duty,"

L

Was of paramount importance to the public interest.

2. The Provisional Order made Your Excellency on the 4th instant, under the Public Revenue Protection Ordinance of 1921, is not in our opinion warranted

by the existing circumstances. When the resolution for increasing import duties was introduced into Council on the 5th instant, Your Excellency's financial advisers, who spoke on the motion, entirely failed to convince the House either of the necessity

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for this measure or the urgency of it. On the other hand they created the impression that the sole concern of the Government was to secure immediately the interest required for the proposed loan and the other financial considerations were assigned secondary importance.

3. The objections to the Government proposal to increase import duties have been fully dealt with by the various Unofficial speakers on the resolution, whose speeches will be found in the official report of the Council proceedings. We deem it unnecessary, therefore, to set them out at length here. The opposition of the entire body of Unofficials to the resolution reflects, as Your Excellency will see, the unanimous opinion of the country, irrespective of class, creed or community. If Your Excellency had the opportunity of considering the views expressed by the Unofficial Members in the course of the debate, they feel sure that the precipitate action authorised by Your Excellency would never have been taken.

4. That the increase in duties, though slight in the opinion of Your Excellency and your advisers, is nevertheless burdensome to the poor, is quite obvious to all who have a knowledge of the country and of the conditions of the import and distribution of the many articles of necessity in our local market. As a matter of fact the cost of such articles has risen already.

5. Whether the country can at the present juncture bear the burden of additional taxation is a problem that deserves our anxious thought and serious consideration and no increase however slight ought to be lightly and hastily imposed. As was indicated in the course of the debate, we are, of course, prepared to face the problem of balancing our revenue and expenditure and it would be our duty in considering the Budget proposals to explore all possible avenues in order to avert any possible financial difficulties, but we should indeed be traitors to the trust imposed on us if we allowed ourselves to be hustled by official impatience to give our assent to increase the burden of taxation before the whole financial situation and the proposed measures for its improvement had been thoroughly examined.

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6. Finally, while we do not for a moment question the extraordinary powers conferred on Your Excellency by Section LIV of the Order in Council, it is respect- fully submitted that a wider meaning and application than have been hitherto assigned to the term question of paramount importance to the public interest" have been given to it in the present instance, and that the right of certification has been exercised in such circumstances and in such manner as to render the Legislative Council absolutely ineffective as a medium of representative Government.

We have, &c.,

T. M. SABARATNAM. A. MAHADEVA. A. F. MOLAMURE.

T. B. JAYAH.

1. X. PEREIRA.

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While sharing with Government their anxiety over the financial situation, and without questioning the Governor's right to exercise his responsibility in declaring the resolution in question to be a matter of paramount importance, we submit that the Governor's certification in this case might have appropriately been made only if the Unofficial Members, after time for consideration, had been unable to effect reduction in the expenditure of the Colony which would have more than counter- balanced the estimated sum receivable from the enhanced taxation.

T. L. VILLIERS.

M. J. CAREY. C. E. HAWES.

While sympathising with the Government's anxiety over the financial situation, and without questioning the Governor's right to exercise his responsibility in declaring the resolution in question to be a matter of paramount importance, I object to the Governor's certification in this case, but only on the ground that any instalment of additional taxation might, without serious consequences, well have awaited the dis- cussion of the estimates of proposed expenditure for the coming year and the question of the pace of our expenditure in the near future, and some understanding being reached between Government and the Unofficial Members in the light of that discussion, in regard to the immediate policy to be adopted with reference to taxation and the matter of a loan.

C. 63230/29/4 [No. 4].

SIR,

No. 67.

COLONIAL OFFICE to ADMIRALTY.

G. A. WILLE.

Downing Street, 20th August, 1929. I AM directed by Lord Passfield to acknowledge the receipt of your letter of the 31st July, regarding the Constitution of Ceylon, and to state, for the information of the Lords. Commissioners of the Admiralty, that the recommendations made by the Special Commission are still under consideration. A note will be made of Their Lord- ships' desire that legislation affecting submarine cables, wireless telegraphy, and other forms of communication incidental to Naval, Military or Aerial operations should be treated as reserved matters.

2. Lord Passfield will submit to Their Lordships the draft of any Sections of any Constitutional Instrument which it is proposed to issue which are likely to affect their interests,

D. B. JAYATILAKA.

T. L. VILLIERS.

Subject to Rider.

D. S. SENANAYAKE. M. J. CARY.

Subject to Rider.

N. J. MARTIN.

N. H. M. ABDUL CADER.

C. E. V. COREA.

C. E. HAWES.

W. A. DE SILVA.

Subject to Rider.

G. R. DE SILVA.

C. E. DE Vos.

E. R. TAMRIMUTTU.

*D. H. KOTALAWALA.

(No. 501.)

SIR,

I am, &c.,

H. R. COWELL.

V. S. DE S. WIKRAMANAYAKE.

G. E. MADAWALA.

EDWARD W. PERERA.

F. OBEYESEKERE.

C. W. W. KANNANGARA.

H. M. MACAN MARKAR.

C. H. Z. FERNANDO.

G. A. WILLE,

W. DURAISWAMY.

Subject to Rider.

8. RAJARATNAM, U.D.

M. M. SUBRAMANIAM.

His Excellency

* Added subsequently to signature of this despatch.

Sir Herbert J. Stanley, K.C.M.G.,

Governor and President of the Legislative

Council of Ceylon.

C. 63363/29 [No. 19].

No. 68.

THE SECRETARY OF STATE to THE GOVERNOR.

Downing Street, 27th August, 1929. I HAVE the honour to acknowledge the receipt of your despatch No. 635 of the 14th July, enclosing a copy of a written protest received from certain members of the Legislative Council against your action in declaring the question of the increase of Customs Duties to be one of paramount importance under the Order in Council of 1923.

2. I have read this protest and the Debates in the Legislative Council to which reference is made in it, but I see no reason for reconsidering the view of the matter which I had already formed and which I indicated in my telegram of the 19th July.‡ 3. I do not think that it is open to question that, in view of the financial position of the Island and of the necessity for raising additional revenue, the imposition of this small additional taxation was a reasonable and proper step. It will no doubt be essential, in the early future, that a complete revision of the system of taxation should be undertaken, and the question of the imposition of an income tax is already

* No. 63.

† No. 62.

† No. 66.