The administration and labour unions have agreed that civil service pay will be cut in two phases, with a 3 per cent cut coming into effect on January 1, 2004, and then another 3 per cent cut in 2005. As a result, an actual 6 per cent cut will not come into effect until 2005, and as such, I disagree to such a move. I feel that a phased-in pay cut only serves civil servants' own interests and does little to effectively trim public expenditure. Therefore, the government may need to raise money by increasing taxes and charges, which is unfair to the business community and Hong Kong citizens.

Staff costs account for almost 70 per cent of the government's recurrent expenditure, which is obviously too high, and the salary levels of civil servants are far higher than those of the private sector. A recent Chamber survey showed that when comparing civil service averages with their counterparts in the private sector, salaries plus benefits for civil servants are 40 to 60 per cent higher. These figures are in the same area as the average 57 per cent obtained by a Liberal Party study early last year.

Since civil service remuneration far exceeds that of the private sector, it would be unfair to businesses and citizens if the administration were to increase taxes -- instead of cutting civil servants' salaries -- to pay for its huge payroll bill. This would also run counter to the principle of "keeping expenditure within the limits of revenues" as set out in the Basic Law.

If the government is unable to trim its costs, this could lead to Hong Kong slipping down the international credit ratings. As a consequence, investors' confidence in the territory would diminish, and the peg might then be threatened, the results of which would affect the whole community.

At the time of writing, the Financial Secretary had yet to unveil his Budget. As I have reiterated in past columns, the SAR Government must bite the bullet and reduce its costs, before considering any measure to increase its income. If it intends to do both, then, I think it should exercise equal treatment.

The government has repeatedly stressed that every sector of the community needs to share the fiscal burden. Now that the government has decided to reduce pay in phases, I personally feel it should do likewise if it is planning a tax increase, and especially any rise in profits tax must be no more than 1 per cent. It should also set a timetable for restoring the profit tax rate to the current level.

Obviously, a pay cut is not be the only way that the government can trim costs, it also needs to consider getting rid of its surplus staff.

One of the key points of the last Policy Address was that the administration will reduce its headcount by 10 per cent within three years to become a "small government." However, the second Voluntary Retirement Scheme is not expected to be appealing enough to encourage staff to leave, because civil servants are paid far higher than employees in the private sector. Moreover, the government has reduced its subsidies for the retirees in its second plan.

In my opinion, the government should consider disbanding redundant staff and compensating them according to the law if the second scheme cannot meet its target. I object to abandoning the means of disbanding as the government said previously, since public money would be wasted as long as the redundant staff remain.

The government also needs to tackle other management problems within the administration that affect its expenditure and efficiency. These include an annual pay rises -- regardless of performance -- praising everyone on the appraisal form, complicated procedures for dismissing staff, and poor utilisation of resources, among other issues.

All these problems cannot be solved without a fundamental restructuring of the civil service. The government needs to bite the bullet and take responsibility for its rising expenditure, otherwise it will never be able to effectively cut its costs.