TNAG-0622-FCO40-770-Budget-of-Hong-Kong-1977 — Page 42

CONFIDENTIAL

4.

extent to which our programmes require that this rising trend should be maintained.

8.

But

Uncertainties in the medium and longer term were described in paragraphs 47-58 of the speech. if the assumptions of growth on which our revenue forecasts are based prove too optimistic, and planned levels of expenditure are threatened by a drop in revenue due either to fluctuations in trade or to renewed world recession, we would naturally wish for a variety of reasons to maintain the implementation of programmes at the planned levels if we possibly could. Obviously there could be circumstances in which this was impossible or contra-productive, and the course of action we adopted would depend on the degree of our problem and whether we believed it was of short or longer duration. But our potential sources of additional funds would be (in no significance of order): to draw on our reserves, to borrow, or to increase taxation, and only if we were satisfied that in the circumstances prevailing these sources were exhausted to their prudent limit or were unavailable would the question of cuts for financial reasons arise. It was with the possibility (amongst other things) of fluctuations in revenue ahead that we decided to add to our fiscal reserves in this year's budget (paragraphs 104-107 referred). In doing so we also of course increased our credit-worthiness. is a reserve of taxability. So I think that we can look to the uncertainties of the future in reasonable confidence that catastrophe apart and given a reasonable amount of flexibility we can fund our programmes to planned levels by one means or another. What of course we cannot say is precisely what these means will be each year until the exact circumstances are known. I certainly do not think it would have been appropriate to include in the speech a more emphatic passage on the possibility of storms ahead and a review of the battery of weapons we might use to meet them if they came. thing of the sort would have been unjustified by the circumstances and seriously destructive to confidence.

g.

W

There

Any-

With regard to the first two sentences of your paragraph 4, we of course learnt some lessons from the recession and our handling of it, and with this knowledge of hindsight and of how things turned out in our major