TNAG-0482-FCO40-547-Diplomatic-reports-from-Sir-Murray-MacLehose--Governor-of-Ho-1974 — Page 64

SECRET

8.

it prudent to assume a growth rate for '74/75 of only 4% with consequent implications of diminished revenue. At the same time there have been

spectacular rises in costs. In the light of all this we concluded that if our programmes were to be achieved sufficiently fast, and if we were to avoid overstraining our capacity in their first three years both some rephasing was necessary and that additional resources were required. With regard to the latter we have raised the overall level of revenue from taxation of all sorts this year by 2.8% and have put the public on notice that from '75/76 new money of the order of $650 m. a year will have to be found, of which hopefully $150 m. a year might come from loans (from the Asian Development Bank) and the balance from additional taxation. Unpalatable though these measures have been and will be, they appear essential if we are to achieve the results I believe necessary.

20.

The Government and Civil Service has responded very well, and with some enthusiasm, to these massive demands put on them. With so much to do, and after gearing up departments to do it, it has been extremely disappointing for all concerned to have to rephaze programmes in the light of financial undertainties. But inspite of the disappointment the new levels of progress will still be very great, and the objectives of the programmes will not be prejudiced, provided the economy continues to perform in the future in the same way it has done in the past.

However

in 1975/77

21.

The Government did consider drawing on its reserves so as to maintain the momentum of its expenditure during this difficult and rather uncertain period, or alternatively of attempting to borrow on a much greater scale than that envisaged above. both alternatives were rejected. With regard to borrowing it is necessary to remember that the Mass Transit Railway Authority will be obliged to go to the market for $HK 2,000 m. for bridging finance, so clearly the Government must be careful not to overload the possibilities of the market by making excessive demands on it meanwhile. With regard to the Colony's available reserves, now standing at about $HK 3,000 m. we would not hesitate to use these in a crisis, indeed this is precisely what they are for, but they are not great when viewed against an annual