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2.
He referred to the low rate of taxation in Hong Kong mentioned by the Minister and said that the strength of Hong Kong's economy depended on what was produced by the people of Hong Kong.
There were no natural resources. We there- fore needed to attract capital investment; and a low tax rate was essential to that. The additional contribution sought by HMG meant very little to the U. K. On the other hand, it would have a considerable impact on the budget of Hong Kong. If a very greatly increased contribution were to be paid by Hong Kong, it would be regarded by the people of Hong Kong as a tribute to the U. K.
(b) Sir Sidney Gordon stated that the maintenance of a garrison in Hong Kong was necessary both for political reasons and in order to maintain confidence. Relations with China were important and confidence must be maintained in order to secure overseas investment. If Hong Kong were to pay the full cost of the garrison these requirements would not be met. The U. K. must make a material contribution to show its commitment to
Hong Kong. A 25% contribution by the U. K. did not represent
a material contribution.
(c) Dr. S. Y. Chung referred to the Minister's statement that the full cost of the garrison would represent only about 6% of total expenditure. He said that Hong Kong's public expenditure was misleading as it included services such as K. C. R. and the airport which should be excluded if public expenditure in Hong Kong were to be related to that in the U. K. It was probable that the rate of inflation in the U. K. would more than double the amount of the Hong Kong contribution by the end of a 5-year agreement. He considered it would be very difficult to explain to the public the reasons for the U. K. seeking a contribution from Hong Kong many times the current contribution at the outset of a new agree- ment.
(d) Mr. P. C. Woo asked whether the reason for HMG's seeking a very considerable increase in the Hong Kong contri- bution arose from political or financial considerations. He thought consideration should be given to a gradual increase in the Hong Kong contribution over a 5 or 10 year period.
(e) Mr. Oswald Cheung said that the Minister's reference to the Hong Kong contribution amounting to only about 17% of the cost of the garrison was correct only in terms of cash pay- ments. The Force occupied a very large acreage of real estate amounting to perhaps 16 m - 20 m. square feet. At a conserv- ative estimate this was worth at least $500 - $600 m. per annum.
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