For those of us interested in a smaller, but more efficient government role in the local economy, there were some promising signs in this year's first Budget from the Financial Secretary, Antony Leung. But they were only promising signs, not promises met.

Despite severe Budget pressures -- a HK$66 billion deficit for 2001-02 and another of HK$45.2 billion in 2002-03 -- the new Financial Secretary resisted the easy solution of raising taxes and other charges to cover the shortfall. This is positive.

Instead, he focussed on the need to first control spending, one of the key suggestions in the Chamber's own Budget submission, before addressing any revenue means of balancing the Budget. Again, this is positive, but it will need to be resolutely pursued if the aims of smaller government and budget balance are to be met.

Mr Leung began by recognising that over recent years total public spending
had simply grown too fast in relation to the growth in the overall economy and
had reached 22 per cent of total community output (gross domestic product) in 2002-03.

This was up from a mere 17 per cent during the mid-1990s and 16 per cent in the mid-1980s. He explained in the relatively short period from fiscal 1998-99 to fiscal 2001-02 government spending increased by a cumulative 17 per cent, while gross domestic product had fallen by the cumulative 5 per cent.

He also expressed concern that government cost and price levels in the provision of its services to the public had outstripped rises in the general community. His figures showed that the government expenditure price level had risen 72 per cent in the past decade compared with just 29 per cent lift in the general community price level.

As a start to his program to cut costs in government, he announced that for financial planning purposes, he had incorporated a proposed cut in civil service salaries into his Budget estimates with the cuts scheduled to come into effect from the middle of the 2002-03 financial year.

This is hardly enough to have a marked impact on government spending, resulting in spending cuts of just HK$3 billion in first (2002-03) year and HK$6.5 billion in a full fiscal year, but it is at least a start. The first task is to ensure that these proposed cuts actually go through come October this year.

However, as I said in my media statement immediately after the Financial Secretary's Budget address to Legislative Council, a lot more that needs to be done if the costs of providing government services are to be cut and the administration's accounts are to be brought back to balance.

At the core of the Financial Secretary's plan to return to a balanced Budget situation (as is required under the Basic Law) by 2006-07 is more aggressive spending restraint beyond the current (2002-03) fiscal year. He intends to achieve this by holding spending growth to half the level of real economic growth in the SAR. It is to be hoped this target can be achieved.

The difficulty the Chamber has with the program, as outlined in the Budget, is that while the broad aims are to be applauded, it is lacking in the specifics of how the restraint in government spending is to be achieved. Beyond the initial aim of cuts in civil service wages and salaries, there is little detail. For this reason, the Chamber is embarking on a two-pronged approach aimed at ensuring that necessary cuts are made.

Our first objective is to see that the proposed cuts in civil service salaries are implemented. Our second is to ensure that the government persists with its plans to rein in its own spending, reduce the size of the civil service and provide for a smaller government sector more in keeping with Hong Kong's needs.

Over the coming months, the Chamber will be examining major areas of government spending with a view to providing the Financial Secretary with an independent view of where we see opportunities for further Budget cuts to be made. We also aim to provide advice on some possible ways of reducing the size and number of layers in the civil service as well as privatising and outsourcing government activities. In doing so, we hope to stimulate a fresh way of thinking on the role of the civil service in Hong Kong.

As for the prospect of new taxes, especially a consumption tax, the Chamber intends to undertake further consultation with members before framing a formal position. However, if all efforts at controlling expenditure and reducing the large Budget deficits have been explored and exhausted, further taxes of some nature may be necessary.