Instead of raising tax revenues, some measures outlined in the 2003-04 Budget may actually reduce the government's income

The HKSAR Government has promised to eliminate Hong Kong's fiscal deficit through a three-pronged approach: cutting expenditure, raising revenue and boosting the economy. Yet many people feel that the Financial Secretary's 2003-04 Budget only increases income and gives scant attention to reducing costs.

Although I have reservations about some of the revenue-raising measures laid out in the Budget -- and hope that the government will consider amending them -- I generally agree with the main direction of the Budget, which is to eliminate the fiscal deficit as soon as possible.

Nevertheless, details of the Financial Secretary's proposal to adjust 3,000 government charges need to be carefully studied. The government has long adopted a "user-pay, full-cost-recovery" principle for public services, but, as we all know, its administrative costs are generally high and so are its fees and charges. As such, public services are not cheap.

While a hike in profits tax will only affect companies that turn a profit, higher government fees mean that all companies that use public services -- including those losing money -- will have higher costs. Needless to say, such an adjustment on the business community -- particularly small- and medium-sized enterprises in financial difficulties -- is worrying.

In addition, the Financial Secretary's Budget stated that the government will need to raise an additional HK$6 billion over the next few years to help restore fiscal balance, and I am worried that it plans to raise the majority of this HK$6 billion through higher fees and charges.

I also disagree with the proposal to substantially raise the progressive Motor Vehicles First Registration Tax rates from 60 percent to 150 percent for luxury, private cars.

The government reckons that by multiplying last year's car sales by the new tax rates, it will generate HK$700 million in additional revenue a year. However, it fails to take into consideration that a sharp rise in tax rates would put a lot of people off buying a new car, and in turn reduce tax revenue contrarily. Shortly after the Financial Secretary proposed this measure, many people cancelled their orders for expensive cars. As a result, some car firms are on the verge of closing and employees within the industry are facing considerable pay cuts and are in danger of losing their jobs.

Besides raising revenue and cutting costs, a recovery in the economy would also contribute significantly to solving the deficit. However, given domestic economic restructuring, the impact of the atypical pneumonia outbreak and Iraq war, and a mediocre global economy, the likelihood of our GDP growing by 3 percent in the coming several years as forecast in the Budget is optimistic. To help revive our economy, we must integrate more with the Mainland, especially the Pearl River Delta.

I support the government's recent moves to attract more Mainland talent and overseas investors to settle in Hong Kong, because it will increase the foreign capital and talent inputting. I also hope the scope of the scheme to attract investors settling here can be extended to Mainland investors. Besides, I have requested that the SAR Government discuss with relevant Mainland authorities ways to ease existing restrictions on allowing Chinese entrepreneurs holding business visas to establish and run businesses here. This would help drive domestic economic growth and alleviate the SAR Government's fiscal pressure by enhancing the flow of capital between Hong Kong and the Mainland.