Antony Leung, financial secretary of the Hong Kong Special Administrative Region (SAR) Wednesday delivered his first budget, and put forth a series of measures to curb Hong Kong's financial deficit forecast to record 65.6 billion HK dollars (8.4 billion U.S. dollars), for the 2001-02 fiscal year.

Hong Kong's economy underwent a downward adjustment in 2001 with a growth of only 0.1 percent in real terms, affected by the slowdown of major economies in the world.

Since business costs of Hong Kong are higher than those of its neighbors, Hong Kong needs to focus on high-value-added economic activities, especially in the areas of financial services, logistics, tourism and producer and professional services, pointed Leung.

He said that the government should have a clear vision of the direction of economic development and be a proactive market enabler.

To restore fiscal balance and maintain competitiveness, the financial secretary put forth a series of measures aiming to reduce the growth of government expenditure and modestly raising revenue.

Prior to the delivery of the budget, the Task Force on Review of Public Finances found that Hong Kong is facing a structural fiscal problem. Hong Kong's estimated substantial fiscal reserve balance of some 369 billion HK dollars would be fully used up by 2008-09 if nothing were done to solve the deficit.

To help solve Hong Kong's structural fiscal problem, the Advisory Committee on New Broad-based Taxes has recommended that the SAR government adopt a Goods and Services Tax (GST), reduce personal allowances under salaries tax and introduce a land and sea departure tax.

Taking into account the current state of the economy, the financial secretary said in his budget that it is inappropriate to make any major changes on the revenue front in 2002-03, but he proposed a 4.75 percent cut in civil service pay and to reduce the civil service establishment to around 181,000.

For tax increase, Leung proposed a modest increase in the duty rate on wine, reduced quantities of duty-free tobacco and still wine that local residents may bring back to Hong Kong, and a Boundary Facilities Improvement Tax.

Leung said that the SAR government will not introduce Goods and Service Tax while there is a downswing in the economy. Nevertheless, the government will continue to study the details of a Goods and Services Tax for implementation as and when necessary.

These strategies in the budget have been praised by the local business communities, tax experts and economists, who agreed that the budget promotes Hong Kong's competitive advantages and helps promote Hong Kong's economic growth in the long term.

The Hong Kong General Chamber of Commerce (HKGCC) welcomed the financial secretary's recognition of the need for smaller government and believed the cut of civil service wages complies with the current difficult economic environment.

The Securities and Futures Commission (SFC) also responded positively to the financial secretary's plan to strengthen Hong Kong's securities and future's market.

The SFC believed that the proposals announced by the financial secretary in his budget will serve to enhance the competitiveness of Hong Kong as an international financial center.

SFC Chairman Andrew Sheng said the Securities, upon enactment, would lay the foundation for further development of Hong Kong's financial infrastructure.

Christopher Nailer, a regional economist and the director of the Economist Conference of the Economist magazine, also spoke highly of the budget for its efficient measures to reduce the government spending.

"It tries to reduce the budget and not provide, in any way, negative shocks, bringing the deficit down to 42 billion (Hong Kong dollars), based on spending cuts, such as those on civil servants' pay. I think that's quite smart," he said.

He noted that a noteworthy point is that the government will maintain a 7.7 percent growth in government spending, which has an appropriately expansion effect on Hong Kong's current economy.

Calvin Lam, tax principal of Delotte Touche Tohmatsu, a major accounting firm in Hong Kong, said it is a budget that has an immediate positive impact on Hong Kong's economy.

On the government's measure to make Hong Kong a more competitive place, the proposal of containing government expenditure to within 20 percent of the GDP growth is also a good measure, said Sarah Mcgratch, a vice president of CPA Australia, adding that that also helps the government improve the budget deficit.

Senior economist of Nomura International (Hong Kong) Ltd, Pu Yonghao, also said that cutting the salaries of civil servants and staff of government subsidized organizations in an attempt to reduce expenditure is a right step forward to reducing the deficit.

(Xinhua News Agency March 7, 2002)