22.
SECRET
23.
The Hong Kong Government's plans to deal with
crime and corruption, organised recreation and other
services for youth, to develop a modern communications
system including an underground railway, and to provide
for urban renewal and improvement, all involve very
substantial finance and are highly relevant to the
objective of achieving domestic contentment and external
respect by the '80s. But, with the exception of
corruption, they are of less UK political interest.
details are covered in Annex D.
23.
Provided the Hong Kong Government is able
The
to finance the programmes described above, the necessary
advances in the colony will be achieved, and will
(and already do) provide much material with which to meet
reasonable criticism in the UK. However we have some
doubts of its ability to continue to do this, firstly without
reform of the fiscal system, and secondly without an increase
in the level of direct taxation or recourse to borrowing
or probably both. The Governor has appointed a committee
chaired by an ex-UK-Commissioner of Inland Revenue, to
make recommendations about reform of the fiscal system,
and these are expected by early next year. The Governor
is confident of his Government's ability to find the
money meanwhile and accepts that there is a reserve of
taxability available, and that money will be borrowed as
necessary. However he must also take account of the
realities in Hong Kong. With its uncertain political
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