CONFIDENTIAL
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6. All this will require a great deal of money and extra taxes will be needed. In my discussions with officials i made the point that taxation in Hong Kong is criticised here as heing too low. No doubt Hong Kong having no natural resources of its own is dependent on attracting business into the Colony; to do this its taxation structure must be competitive with that of its neighbours. Nevertheless I believe there is scope for increasing taxation, for redistributive and welfare purposes, as does the Governor. The pace and extent of increases should he related to the danger of economic decline which in turn would create serious problems for the UK internal unrest and immigration.
7. I also made clear our view that in a period of recession, increasing unemployment, and declining real wages any further burdens on the mass of the people would be unwise as well as unfair. Representatives of the Free Trade Unions (about a quarter of the labour force) made this point to me; and although
eking control over the mass of Chinese workers continues to
he firm, it could snap under pressure or the Communist
leadership could allow a revolutionary situation to develop rather than lose control.
CORRUPTION
8 Corruption is a curse in Hong Kong as in so many other countries in Asia. But it is well to remember that the present publicity results from the successful unmasking of corrupt officers. The Governor's Independent Commission Against Corruption is beginning to make progress. There is widespread public support and co-operation with it. We may therefore expect more revelations precisely because the Commission is doing a good joh. I believe it should be given a chance to succeed. I made it quite clear however, that we shall be watching progress with a view to intervening if necessary. (I repeated
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