TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 60

Sir Murray MacLehose

SECRET AND PERSONAL

20 February 1978

4. The Minister is still concerned (we have said this to you before) that the format of your budget remains rather old- fashioned, i.e. it is a classic colonial budget whereby revenue is estimated and then the cake cut up to provide the various services to the levels compatible with the revenue estimates, With no effective increase in taxation this year, the budget makes due provision for all the projected increases in social spending. This could be a coincidence. Or uncharitable people might think that Philip some months ago agreed to the planned increases in social spending to a level which he knew could be financed from the available revenue in 1978/9.

1978/9. You have said to Tonald Murray and myself that in Hong Kong your equivalent of the British Chancellor of the Exchequer's budget speech must be taken as the combination of your policy speech to LegCo plus Philip's budget speech. That is a fair enough point provided that there is adequate verbal correlation between the two. It follows, however, that the most logical structure for the budget speech would be to state the expenditure first and then follow this with the explanation of revenue. This would be a sequitur to the expenditure-linked proposals in your speech and would, we hope, be taken as a public indication that spending is not necessarily a function of the revenue available,

5. You mentioned in paragraph 5 of your telegram that a balanced budget is suited to the uncertainties and mood of the post-MFA negotiations. The opinions of a series of knowledgeable visitors from Hong Kong and our reading of the media suggests to us that the immediate impact of the new MFA has been absorbed. We take, of course, the point that the important effect of the MFA will be in its constraints on future growth in the Hong Kong textile industry rather than at a time when Hong Kong's overseas textile markets are anyway depressed. One of our greatest difficulties in trying to promote sympathetic understanding of Hong Kong's economic problems in the UK is caused by Philip's and David Jeaffreson's tendency to be constantly crying wolf while the economy goes from strength to strength with only a comparatively small part of the increase creamed off to aid the poorest sector of the population.

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SECRET AND PERSONAL

J A B Stewart

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