Financial Secretary Henry Tang yesterday made it clear that a tax reduction proposal is unlikely in view of the severe budget deficit.

Instead, he would consider introducing a goods-and-services tax (or commonly known as sales tax) and shed more light on this subject in his debut budget in March.

Hong Kong's narrow tax base provides room for the introduction of new taxes. Tang said this on the first of a three-day debate session on the 2004 Policy Address at the Legislative Council yesterday.

Hong Kong has been recording operating deficits for six consecutive years since 1998-99. Rating agencies have shown concerns. In the first nine months of the 2003/2004 financial year, the government incurred HK$71 billion in deficits.

"It is not only our constitutional duty but also an important basis for economic development to get rid of the budget deficit," he said.

"During my consultation for the 2004-05 budget, I have received a very solid message: the government must first strictly control its own expenditure and to improve efficiency before expanding the income and I totally agree to this."

In this regard, he said he has prolonged the date of fiscal balance by two years to 2008-09, cutting public expenditure by 11 per cent over the next five years and to control public expenditure within 20 per cent of GDP.

Legislators, however, have different views on how to reduce deficits.

Ip Kwok-him, vice-chairman of Democratic Alliance for Betterment of Hong Kong, asked the government not to raise taxes or livelihood-related charges.

Democratic Party Chairman Yeung Sum was opposed to slashing education and health expenditure and the creation of the sales tax, but he echoed the suggestion to freeze livelihood-related charges.

To tackle the budget deficit, he suggested withdrawing not more than HK$10 billion from the Exchange Fund to the fiscal reserves. Emily Lau, of the Frontier, supported his suggestion.

Liberal Party Vice-Chairman Selina Chow asked the government to improve the business environment by simplifying the licensing procedures and deleting the obsolete regulations.

Her party colleague Howard Young called for simplified entry procedures for citizens from some countries, and to extend the free travellers scheme to the remote regions on the mainland.

Apart from suggesting building more convention and exhibition facilities and tourist attractions, he said Hong Kong, as an international metropolis, should have a cruiser terminal to attract more business and high-spending travellers.

Lau Chin-shek, from the Confederation of Trade Unions, called for caring of the lower classes in the course of economic restructuring. He called for creation of more short-term jobs as well as minimum wages and maximum working hours for the workers.

(HK Edition 02/05/2004 page2)