CO129-553-9 Empire Air Mail Services- participation of Hong Kong in proposed development 11-3-1935 - 21-5-1935 — Page 20

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6. The existing Ordinance No. 1 of 1901 (The Defence Contribution Ordinance No. 1 of 1901) is not altogether satisfactory, and various differences of opinion fre- quently arise. In the first place Colonial revenue includes the gross receipts from all Contributions to the sources of revenue, but does not include proceeds of land sales. Widows' and Orphans' Pension Scheme and sale of condemned stores have also been ex- cluded and only the net receipts from the Opium Monopoly are assessable. There is also the question which has recently arisen as to whether military contribution should be paid on the increase in the book values of sterling securities, when sold, owing to the fall in exchange. These securities form part of the surplus balance of the Colony, they are due greatly to proceeds of land sales, and may be considered as part of the Colony's capital. Under Colonial Regulation 309 the profit has to be carried to Current Revenue. It is not considered that any such increased dollar value of sterling securities is revenue for the purposes of the Defence Contribution Ordinance, though it may be necessary according to Colonial Regulations, which do not deal specifically with exchange difficulties, to place any difference on the revenue or expenditure side of the accounts.

7. Section 3 of the Ordinance is now out of date, in so far as in the last para- graph the percentage of 4 per cent. is taken. The Colony's previous loans are funded at 3 per cent., and 4 per cent., at the time the Ordinance was drafted, was a Times have now proper percentage to include interest and sinking fund on loans. altered and 6 per cent. would now be more accurate and should be taken for all expen- diture from revenue since the beginning of 1913.

8. Under this Ordinance relief is given in the case of railways and telephones and other productive undertakings of a similar character, and in Mr. Harcourt's despatch. No. 250 of 19th August, 1911,* a request was made that in the event of reproductive undertakings other than railways or telephones, the principle of assessment of net receipts shall not be extended to them without previous reference to the Secretary of State. Under this clause I shall be compelled to press, if the Treasury will not agree. to the new proposed method of assessment, that various further undertakings be included among those upon which only net receipts are taken for calculation of military contribution. I refer for example to the following:-

(a) Wireless Telegraphy. This obviously comes under the heading "Telephones

and similar undertakings."

(b) Waterworks. These are productive undertakings, and the Colony has now

to invest large sums in such undertakings.

(c) Aerodrome. This is as necessary for transit by air as is a railway station

for transit by rail.

(d) Harbour Dredging. Allowances should be made for interest on loan or

revenue used on capital expenditure.

(e) Post Office operations.

(f) Ferries. The question of establishing a vehicular ferry across the harbour

is under consideration.

(g) Operations which might properly be charged to municipal rates.

9. It is sought to avoid raising difficult questions of this nature by the suggestion for the new method of assessing the military contribution; and at the same time the existence of such claims for withdrawing revenue from the military contribution assessment provides good reason for accepting the rate of 12 per cent. for future assessments in accordance with the new scheme, in preference to any higher rate. Twelve per cent. would provide at least as large a sum as His Majesty's Government is entitled to expect if the present system were worked in a way considered equitable by this Government.

I have, &c.,

W. T. SOUTHORN,

Officer Administering the Government.

A

* No. 26608/11.

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