SECRET
UK EYES A
of these deficits would be further significantly
increased if the Hong Kong defence contribution were
raised from the present planning figure of £17M (as
already proposed by the Governor) to the equivalent
of 75% of the estimated cost of the reduced garrison.
Removing the deficits would require a combination of
expenditure cuts and phasing, tax increases and
higher borrowing.
(b) From an actual figure of 8% in 1973/74 the annual
growth rate of the Hong Kong economy has fallen to
a figure in 1974/75 of 4% estimg/ted in the Budget and
a more likely actual figure of/1 125. Growth in
J
1975/76 is likely to be very Дow, although current
budget forecasts assumed a return to the customary
planning figure of 7% in 1976/77.
Even if such a
recovery were achieved, it is considered unlikely that
capital expenditure could be financed except at higher
rates of taxation and borrowing than at present.
These circumstances/make 1975 a particularly difficult
year in which to contemplate an increase in the defence
contribution. An increase to a proportion of 75%%
would be seen as a thoroughly unreasonable demand.
(c) Graduation to a higher contribution would be helpful
presentationally: the relatively high proportion of
costs entering the Hong Kong economy is also of
presentational value but more to the UK than to Hong
Kong.
SECRET
-10-
MUK EYES A
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