"I will not be proposing a course which has been under some public discussion recently — deficit financing. It is wholly inappropriate to our economic situation. In its least extreme form it is based on the theory that additional money generated by a Government deficit (and given currency, as necessary, by use of the printing press) will stimulate consumption and thereby production, in time to match the excess money with goods before real inflationary harm is done. Unfortunately we dont, and cant, produce more than a small fraction of what we consume, and increased consumption would merely mean increased imports without matching exports; and a severe balance of payment crisis, which would destroy Hong Kongs credit and confidence in the Hong Kong dollar; and which we could not cure without coming close to ruining ourselves. Keynes was not writing with our situation in mind. In this hard world we have to earn before we spend."
Sir John James Cowperthwaite, KBE, CMG, was a British civil servant who served as Financial Secretary of Hong Kong from 1961 to 1971. His introduction of free-market economic policies are widely credited with turning postwar Hong Kong into a thriving global financial centre. During Cowperthwaite's tenure as Financial Secretary, real wages in Hong Kong rose by 50%, and the portion of the population
"The fact that previous generations have handed down to us a substantial public heritage by way of roads, port, etc. almost completely free of debt, seems to me to impose some limitation on the validity of the theory that by borrowing we should, or could, pass on the burden of development to the next generation."
"If one accepts that in general social services should be made available to all on the basis of ability to pay, one has the choice of two opposite principles of action, although they need not be mutually exclusive—either progressive taxation and free services or fees covering costs with remission for those who cannot afford them. The former method is appropriate, in my view, in rich developed countries where the principle of progressive taxation can be applied without unduly adverse economic or social results, and the wastes inherent in full and free services can be afforded. In less advanced or poorer countries, where neither economy nor society is geared to progressive taxation and waste cannot be tolerated, fees remittable in case of need seem to me clearly more appropriate."
"Economists of the modern school will no doubt protest that I have said nothing of the use of budget deficits or surpluses for the control of the economy in general. I doubt if such techniques would ever be appropriate in Hong Kongs exposed economic position; and I think they are certainly not appropriate at present, when in strict orthodoxy they would suggest the need to plan for a very substantial surplus "to take the heat out of the economy". Although we have in fact run substantial surpluses in recent years we have not done so with deflationary effect because we have not removed them from the economy but have left them inside the Colonys banking system to continue to work for the economy. $500 million or 55% of reserves are so held at present."
"It seems to me that we have three choices; first, public services of high standard and cost but of limited scope, leaving unfilled a substantial part of the present gap, not necessarily benefiting those in real need and benefiting many who are not in need at all (this has been our historical approach); second, public services to meet the requirements of all, with the beneficiaries making a contribution by way of fee according to their means, and with adequate provision for complete remission in suitable cases; or third, universal public services provided for rich and poor alike on terms the poorest can afford; that is, the welfare state where all benefit and the whole cost is met by the taxpayer in general. I think it is well-known that I am an advocate of the second approach."
"One of these is an increasing awareness of the benefits to our economy, particularly in terms of investment and enterprise, both local and from overseas, of not having the inquisitorial type of tax system inevitably associated with a full income tax. Another is that even I, who have always believed in the vigour of our economy under our present tax regime, have been surprised by the growth of revenue generated at our present tax rates."
"We enjoy a considerable net inflow of capital and I am sure that a condition of its coming, and staying, is that it is free to flow out again. It is also important for Hong Kongs status as a financial centre that there should be a maximum freedom of capital movement both in and out."