CO129-597-3 Estimates 1950 22-2-1949 - 3-11-1950 — Page 10

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3.

Of the estimated expenditure of $180,000,000, $74,000,000 is in respect of personal emoluments. The Governor admits this is unduly high proportion of the total expenditure but envisages a possible reduction of 10% in the amount provided for the clerical and menial grades as a result of the reduction which may be carried out following the report of the Efficiency Expert.

4. As regards loan expenditure, the views expressed by Mr, Landale referred to in paragraph 41 of the Governor's despatch, seem somewhat irresponsible and in effect amount to asking the United Kingdom investor to bear the immediate cost

development of all reconstrution work so as to relieve the local population of increased taxation or even of subscription to local loans. A copy of paragraphs 40 to 48 of the despatch should be registered ely on 54126/4/49 (Loans) for separate consideration.

5.

Under the revised arrangements of financial control introduced as from 1st April 1948, the Secretary of State's approval is required for the estimates, and the Secretary of State is to keep the Treasury informed of all important financial matters, A copy of the estimates has accordingly already been sent to the Treasury and the Secretary of State's approval of the estimates will be required. In fact we seem to have reached the position of financial devolution in Hong Kong since any effective comments on the estimates were contained in our telegram of 12th March 1949 at (NO. 6) on this file. Any further comments of importance beyond formally approving the estimates are bound to some extent to be repetition of points which have already been made and on which the Governor has in fact commented his reply at (No.13) on the file. In fact, our only means of enforcing increased taxation would be if we were to make such an increase conditional on either direct further assistance from H.M.G, in connection e.g. with the expenditure on internal defence or on" scorched earth" claims. As regards the latter file 54126/6/49 is being circulated separately. The only other connection is with a loan to be raised on London. This question is also under separate consideration. No question however of any immediate assistance either direct or indirect on the above groundarises at the moment, and therefore there seems little point in doing other than formally approving the estimates, noting the various points made by the Governor and commenting on our view that some increase in income tax is not

the only desirable but could in fact be carried out without risks evdou envisaged by the Governor, and that such increased revenue is in

fact necessary in view of the difficulties experienced by the Hong Kong Government in raising loans locally to meet rehabilitation expenditure.

? draft despatch for conson on those lines for Treasury agreement.

H. PALMER)

22nd June, 1949

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