TNAG-0446-FCO40-511-Discussions-with-Sir-Murray-MacLehose--Governor-of-Hong-Kong-1975 — Page 7

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The preliminary estimates for 1975/76 had forecast a deficit of HK$ 2,300 m; it was hoped to achieve a balance by cutting proposed expenditure by HK$ 1,000 m, increasing taxation by HK$ 660 m (equivalent to increasing recurrent revenue by 11%), and borrowing H 600 m. Sir Murray was reluctant to cut capital expenditure

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Taxation in Hong Kong was currently divided as follows: direct, 35%; indirect, 23%; and other revenue (including land sales), 42%. Lord Goronwy- Roberts hoped that a fair part of the increase would fall on direct taxation. Sir Kurray indicated that The pattern of taxation might change in this direction

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Lord Goronwy-Roberts acknowledged that Hong Kong was unique. It had no indigenous resources and investment had to be attracted from outside. He

appreciated why Sir Murray believed that feparing investors should not be too severely squeezed.

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6.

Possible Constitutional Changes

elsewhere

In reply to a question from Mr Ennals, who acknowledged that Hong Kong could not proceed to full independence, Sir Murray MacLehose explained why it was also difficult for Hong Kong to progress towards internal self-government. Historically, internal self-Government had been followed fairly quickly elsewhere by full independence. However it was presented to the Chinese, any move towards internal self-government might therefore be misinterpreted. Moreover, any elections in Hong Kong would highlight the division between Nationalists and those favouring

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