SECRET & INDIV
5. In the absence of any guidance from London, it is perhaps natural for a Colonial Financial Secretary to construct his own guidelines for fiscal policy and to judge their success by self- justifying results. It is unquestioned that Hong Kong has a high reputation for fiscal management and the strength of its currency and balance of payments, absence of debt, and strong competitive position would be seen by Mr Haddon-Cave as adequate justification for the rules he has adopted. However, these results
have been bought at considerable cost:-
(a) lower social expenditure than could have been
achieved with evidence effects on the standard
of housing and education necessary for an increasingly sophisticated society needing to improve its
technological capability as low cost competitors
come up behind;
(b)
out of date taxation system which is, indeed, regressive at certain levels of income;
(c)
an economy of impressive vigour but liable to manipulation by forces outside government control. With all the recognised limitations on change (not excluding the unofficial majority on the present Finance Committee), it is not difficult to conclude that some relaxation in the present rigid, and not self-evident, guidelines should be possible. For instance, there is simply no basis for the 20% limit on government expenditure other than as a construction in the Financial Secretary's mind; and while it is evident that Hong Kong must offer some tax discount for investors in view of the political uncertainties, no justification for retaining the present 15% absolute limit on individual tax-rayer's liability.
6. These points are, of course, well understood by the Governor
but it seems that he must have so far been unable to prevail over those of the Financial Secretary. The Governor might be asked if he can tell us anything about this which might be useful in briefing Lord Goronwy-Roberts who has expressed some disappointment
SECRET & INDIV
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