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

I have seen wome W.

I don't think we

have faing at this

of first Sentence f. 487 (13)

more so than

many

Mr.Wallace

I am sorry to have kept this file. I have been extremely pressed with other matters and was anxious to study the matter carefully.

It seems to me that the despatch at (13) sets out clearly the present financial position of Hong Kong, and I hope that we shall comment favourably on this fact in our reply. What is perhaps more important, however, is that the later paragraphs of the despatch give us the first beginnings of a comprehensive programme of external borrowing. Hitherto we have received general warnings about possible loan requirements in respect of e.g. the reservoir project, but I think I am right in saying that no programme, drawn up in relation to the Colony's present financial position and future prospects, has hitherto reached

us.

I have been hoping for some time that the Governor would give us sufficient material to get to grips with Hong Kong's external borrowing problem, and have not been altogether happy with the way in which things have been left in the past. We have not, as I think you know, given Hong Kong any place in our rough programme of Colonial London Market requirements up to the end of March, 1952. This was because there was no Kong Kong requirement in sight at the time when the programme was drawn up, but clearly a genuine Hong Kong requirement must not be ruled out on those grounds. The results may be awkward for us, because we may be faced with the problem either of fitting Hong Kong into the present limited programme or of extending the programme for Hong Kong's sake (and persuading the Treasury to agree to this course); but if Hong Kong's intrinsic case is strong enough to stand beside that of other Colonies whose needs we are proposing to meet, the problem will just have to be tackled. I have felt for some time that there was a Hong Kong case, and have not been altogether happy about the way in which we have told the Governor, up till quite recently, that London borrowing was out of the question. I am glad, therefore, that he has returned to the charge in the present despatch and has given us some material to work on.

On the

This does not mean that I regard the information in the present despatch as complete or altogether satisfactory. contrary, I regard the stated requirement of $150 million as almost certainly inflated, and we are given no information about the proposed timing of a London loan. More important still, the Governor's apparent assumption that he can apply successfully for * London loan without doing a great deal more to satisfy H.M.G. that he is pursuing a resolute taxation policy is by no means justified. I agree with Mr.Palmer that the remarks about taxation in the present despatch leave a great deal to be desired. The possibility of increasing income tax is lightly dismissed on the grounds that any increase, however small, would redouble the danger of widespread evasion. I find it hard to believe this though I readily believe that the Hong Kong Chinese are as adept at tax evasion as most other inhabitants of this planet,

Income tax staff in Singapore is no more adequate than in Hong Kong, yet the rate of the tax in Singapore is markedly higher. The Governor's argument is, of course, a very easy one to use and a very difficult one to rebut, but I am convinced that a moderate increase in the immediate future would yield handsome returns.

In these circumstances I think we should in any case have had to return to the charge on the taxation issue, even if the proposals for a London loan had not been put forward. The existence of those proposals makes the moment, in my view, even more opportune. As Mr.Palmer says, Hong Kong seems to have slipped into a position of fairly advanced financial devolution,

and to/