48
be able to do this from its own resources to a very limited degree. It is quite safe to say, therefore, that the tendency will be for expenditure to increase during the next five years. but it is not possible to give any estimate of the proportions in which that expenditure will be borne by Government and the new Municipality which will, during this period, gradually be taking over more and more of the services now operated by Government. It is probable that revenue will contract for at least some portion of the next five years and certain heads of revenue will be handed over to the Municipality. The prospect of any large surplus after the present year, which is really all that matters for the purpose of this review, is remote. On the other hand, I hope that it will prove possible to avoid any large deficit.
27.
Unofficial opinion is most anxious that an early decision should be reached in regard to the incidence of the se outstanding war time commitments. It is felt that if this could be settled on an equitable basis the Colony could stand on its own feet and that there would be no justification for continuing the period of Treasury control. In the concluding
(38) 54126/1/+6. paragraphs of his despatch No. 48 of the 24th July, 1946,
Encl. 3
Sir Mark Young urged that this Colony should be given a free grant from Imperial funds for rehabilitation purposes on the lines of the grant made to Malta. In view of the scrious economic crisis with which the United Kingdom is now facod, I hositate to press that proposal but I do feel strongly that if His Majesty's Government does not feel able, or is not in a position, to make such a grant, they are at least under a moral obligation to see that Hong Kong resumes its place in the British Commonwealth unencumbered by a crippling weight of debt, particularly when that debt has been incurred because this Colony was unfortunate enough to be one of the outposts of the Empire which were overrun by the onomy. Fecling is intensifying locally that a small Colony with no reserves and a very limited revenue should not, from its own resources, be expected to meet the full consequences of a period of onomy occupation and the devastation caused by wholesale looting when all control coased. The Colony paid a substantial defence contribution before the war and the local view is that this represented a kind of insurance and that the whole Empire, for the purpose of war damago, should be regarded as one unit. This view may not be well founded as the cost of the garrison was almost certainly greater than the amount of the defence contribution, but the feeling novertheless exists, as is evident from leading articles in the Press, of which I enclose a specimon, and from questions in Legislative Council regarding the incidence of war expenditure which are almost certainly intended to supply information on which some motion by Unofficial Members can be basod.
28.
Assuming that any question of a free grant is now out of the question, I would suggest that a settlement might be sought along the following lines:
(a) All funds advanced by His Majesty's Government to
moet expenditure incurred on behalf of Hong Kong between the date of the occupation of the Colony and the re-establishment of Civil Government to bo finally accepted as a definito charge against Imperial funds. This would only cover expenditure which it became necessary to meet on behalf of the Colony after Hong Kong's only remaining asset, the income from the Exchange Fund, had been exhausted.
(b) All outstanding oxpenditure still in suspense
directly arising from the war to be accepted as a charge against Imperial funds.
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