CO129-553-9 Empire Air Mail Services- participation of Hong Kong in proposed development 11-3-1935 - 21-5-1935 — Page 63

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partly for civil purposes. It also includes certain dredging operations which will be useful both for the development of the harbour and for the purpose of forming the aerodrome. The revised estimate for the Harbour Department is $416,729, and for the aerodrome, after deducting the contributions from the Imperial Government, is $1,386,467. Item 3 was a general item, inserted to bring the loan up to the round figure of $5,000,000. Under Clause 3 (2) of the Ordinance, the $500,000 provided under Item 3 has been appropriated towards the excess expenditure under Items 1 and 2.

7. It will be noted that the revised estimate of expenditure on Items 1 and 2 exceeds the total of $5,000,000 by $1,435,011. That sum has been advanced from surplus balances, but will be repaid when the new loan is issued.

8. The schedule for the new loan has not yet been definitely fixed, but it is approximately as follows:-

1. Completion of Items 1 and 2 in 1927 loan schedule

2. Shing Mun Valley scheme, second section

3. Aberdeen Valley water scheme

$

1,435,000

9,200,000

2,702,000

4. Improvement and extension to water mains in City

and Kowloon

1,000,000

5. General installation of water meters (20,000

meters)

TI

1,200,000

6. Development of catchwater areas, minor reser-

voirs, filtration plant, &c.

1,000,000

7. Vehicular ferry

1,500,000

8. New gaol

4,500,000

9. Redemption of 1927 6 per cent. loan

5,000,000

€27,537,000

12.

As regards paragraph 12 of your letter, I am to state that the question of making separate provision for investments from land sales revenue and the income arising from such investments is receiving consideration.

A copy of this letter has been sent to the Treasury.

13.

I am, &c.,

H. R. COWELL.

•

9. It is proposed that this large loan for development purposes should be issued locally in instalments, as the money is required. The term of the loan will probably be 25 years from the date of each issue, and repayment will probably be by means of drawings after the 5th year for the balance of the 20 years by equal annual payments. Extra taxation will be necessary to provide funds for the interest on, and repayment of, this large loan. It will be found partly by increased payments for water, when water meters are generally installed, and partly probably by an increase in the assessed taxes.

10. It will be noted that the loan proposals include the redemption of the Public Works 6 per cent. Loan of 1927, as it is hoped to replace it by a loan at a lower rate of interest. If that is done, Ordinance No. 14 of 1927 will cease to be operative and the question of repealing Section 15 of it will not arise, but I am to urge most strongly that the Army Council should agree that a clause similar to Section 15 of the 1927 Ordinance should be included in the new Loan Ordinance when it is enacted. Unless the interest on the new loan and the sums required for its redemption are exempted from military contribution, the costs will be so increased that the development pro- gramme will have to be seriously retarded. It need hardly be pointed out that all the items of the new loan schedule with the exception of the gaol are revenue producing and that, if and when the full development programme is completed, it will effect a very substantial increase in the normal revenue of Hong Kong on which military con- tribution will be payable.

11. As regards paragraphs 10 and 11 of your letter, it is noted that the Army Council draw a distinction firstly between book profits and actual profits, and secondly between the profits arising from sterling appreciation of the securities and profits arising from depreciation of the Hong Kong dollar. As regards the first, I am to point out that the considerations put forward in the Colonial Office letter of 20th November, 1931, apply just as much to realized profits and losses as to book profits and losses. If such profits, whether realized or not, are included in the revenue liable to assess- ment, it should be admitted as a corollary that deductions should be made for losses. Moreover, it is felt that it is not proper to draw a distinction between changes due to ordinary appreciation or depreciation of securities and changes due to alterations in the value of the Hong Kong dollar. The latter are, in fact, much the more important of the two, and it is not possible to confirm the Army Council's understanding that the amount involved can only be very small.

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