The Hong Kong SAR Government has already confirmed that the Budget deficit for the 2001-02 fiscal year could be as high as HK$60 billion, well up on the original forecast of HK$3 billion and mostly attributable to the economic slowdown. As of the end of October 2001, the deficit had reached HK$63 billion. However, with the bulk of tax revenues traditionally received in the final months of the fiscal year through to the end of March, this figure should improve by the end of the fiscal year.

At the same time, the government's "Advisory Committee on a New Broad-based Taxation System for Hong Kong," having gone through a brief consultation process, appears to have decided to recommend the government go ahead with plans for two new taxes, despite widespread public opposition. The most important of these is a proposed broad-based consumption tax set at around 3 per cent; the other is a land departure tax set at HK$18 per person, per exit from the Hong Kong SAR.

I raise these issues because I would like to explain to members a little about what the Chamber has been doing in response to the public debate on tax issues. First, we have canvassed members' views in two surveys, so we know exactly their thinking on key government revenue and spending issues. Second, we have publicly taken the position that new taxes are the very worst thing that can happen during an economic slowdown. Third, we responded robustly to the consultation document produced by the Advisory Committee

In relation to the last matter -- the Advisory Committee's report -- as Chairman of the Chamber I not only responded with a letter to the committee itself, but with one to the Financial Secretary, Antony Leung. My aim in both letters was to put forward clearly and firmly the views of the Chamber on the Government's Budget situation and whether there is a need for news taxes to be considered at this time.

The letter to the Financial Secretary outlined the Chamber's concerns about the rapid rise in public spending to more than 20 per cent of gross domestic product (GDP) and questioned whether the government was doing enough to keep spending under control. (The letter, therefore, complements nicely the Chamber's views on the need for continued reform of the civil service, the outsourcing of the provision of government services and an ongoing emphasis on privatisation, where that is deemed possible).

The second letter to the Advisory Committee noted (and had attached to it) the letter to the Financial Secretary. It went on to explain that the Chamber had difficulty in considering whether there was any need for new taxes when the government's task force on its future revenue needs had not yet reported on whether the present Budget deficits are structural or cyclical in nature. This is, of course, crucial in deciding the need for new revenue sources.

Our first concern then, is that government spending restraint must be the priority in ensuring budget balance when the 2002-2003 Budget is announced in March. Our second, is that there should be no new taxes (or tax increases) when business is suffering from another economic downturn. Our third, is that if it is proven beyond doubt that new taxes are needed to combat a structural deficit situation, they should only be considered under stringent conditions.

As I said in my letter to the advisory committee, "the Chamber is prepared to support a broad-based consumption tax provided the following factors be taken into account:"

I also suggested that if the revenue collected from any GST/VAT proved to be more than needed, other existing taxes might be reduced. Separately, the Chamber suggested the government might consider a land and sea departures tax regime, for reasons of revenue and equity (an air departure tax being already in place). We added that the introduction of such a departure tax need not be linked to the timing of any other broad-based tax.