(4) North Borneo and Sarawak should receive a State road grant for the first two years after the application of Part VII of the Constitution at a rate to be agreed between the Federal and the Borneo Governments; thereafter the provisions of Part II of the Tenth Schedule should apply but so that—
(5) If the rate of annual road grant for North Borneo finally agreed upon is less than $4,500 per mile in respect of 1,151 miles (representing the 1962 road mileage) the Federal Government should make good the short-fall in each year up to and including 1967.
(6) Subject to the provisions for review made in sub-paragraph (9} below in order that the Borneo State Governments should have enough revenue to meet the cost of State services, the State should receive as of right, where the assignment of revenues to the State would in 1963 have resulted in a deficit, an annual balancing grant equal to the difference between the estimated State revenue in 1963, including assigned revenue and statutory grants, and the estimated cost of State services in 1963, calculated as if the proposed constitutional arrangements had already come into force. The published Revenue and Expenditure Estimates for 1963 would be used as the basis of the calculations.
(7) Subject to the provisions for review made in sub-paragraph (9) below, in addition to the annual balancing grant, Sarawak should receive as of right revenue sufficient to meet the annual increase in the current costs of State services plus any sum required to offset any decrease in the State's revenue. During the first ten years this would take the form of an escalating annual grant; the amount of this grant would be fixed in advance for each of the first five years and would be decided at the end of this period by an independent assessor as described in sub-paragraph (9). In recognition of the fact that the Sarawak State Departments are still relatively undeveloped compared with their Malayan equivalents and because otherwise there would be no means of enabling them to develop to an acceptable level the escalating annual grant together with the natural growth in State revenue and revenue assigned will, until the first independent review, assure an expansion of State services of not less than 10% per annum provided examination of expenditure over the period 1959 to 1962 shows a rate of expansion in such services of not less than that rate. If the average percentage growth over the period 1959 to 1962 proves to be less than 10% per annum then the escalating annual grant shall be calculated so as to provide for a continued expansion at the same rate.
(8) Subject to the provisions for review made in sub-paragraph (9) below. North Borneo should receive each year a grant equal to 40% of any increase in Federal revenue derived from North Borneo and not assigned to the State over the Federal revenue which would have accrued in 1963 if these financial arrangements had been in force in that year. The sum payable would be calculated on the basis of actual revenue received in each year.
(9)(i) The following arrangements should be subject to renew by the Governments concerned and, in default of agreement, by an independent assessor, appointed jointly by the Federal Government and the Government or Governments of the State or States concerned and his recommendations would be binding upon each party.——
(ii) The assessor should, in carrying out his review, take into account not only the needs of the State concerned but also the financial position of the Federal Government. Subject to that, he should aim to ensure that his recommendations will result in securing as of right to the State or States concerned sufficient revenue to meet the cost of State services at their then existing level with such provision for their expansion as he thinks reasonable.
