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growth of domestic consumption.
Mr Haddon-Cave spoke to me at some length about the effects of the floating of the HKS in November 1974 which he claimed were only now coming to be under- stood (this had been the theme of his speech to the Hong Kong Society of Security Analysts on 8 September). His main point was that under the old fixed rate regime Government had been able to exercise control over the economy through the money supply but things were now much more difficult. Taking up this point, and bearing in mind Mr Michael Stewart's report on his visit to Hong Kong I asked a number ofpeople whether Government should or could become more directly involved in the management of the economy. Mr Newbigging's reply was fairly representative. It was to the effect that Government was already becoming heavily engaged through the Mass Transit and the massive public works programme; any further and more direct intervention would have to be taken very slowly and carefully.
8. I spent some time discussing the work of the Advisory Committee on Diversification. It is still too early to forecast what results will emerge since the six subcommittees which have been set up have not yet completed their work. But Mr Haddon-Cave made it clear that he attached the highest importance to this project and expec- ted to be engaged on it virtually full-time for two or three months after he had finished work on the budget. In his view, the final report will be a definitive study of the Hong Kong economy and its prospects, and it will be essential to get it right.
9. With the prospect of another large budget surplus in 1978/79 (largely due to bouyant land sales) the possibility of raising taxes is clearly not an immediate issue. I nevertheless asked a number of officials and businessmen whether the current 15% rate for personal taxation could be raised without the dire consequences which have often been adduced. The answer most people gave was that a rise of a few percentage points would be acceptable provided there was a demonstrable need for it and provided it was made clear that no further increases were anticipated for a number of years ahead. The argument ran that an increase in taxation unaccompanied by assurances about the future would be regarded as the thin end of the wedge and businessmen would draw their own conclusions.
Police and Anti-Corruption
10. I spent an hour and a half with Mr Slevin and a little longer with the new Commissioner Against Corruption, Sir Donald Luddington and his principle assistants. The Police and the campaign against corruption also came up in many of my other meetings and conversations with people outside and inside Government. I found that last November's partial amnesty was still a burning topic. A number of senior offic- ials thought that the Governor should not have made his decision without consulting ExCo (it was pointed out that ExCo had been sum- moned in the middle of the night at times of crisis in the past) but few people to whom I spoke thought that the decision in itself had been wrong.
There was nevertheless a good deal of concern that other public servants would now be more disposed to adopt strike tactics to get improvements in pay or conditions of service.
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