Executive director of racing Winfried Engelbrecht-Bresges welcomed the day's betting turnover figure of $1.043 billion, the highest of the season and $20 million up on last year's Lunar New Year fixture. Attendance was also positive, up from 74,322 in 2004 to 76,030, as punters flocked to Sha Tin to try their luck at the first meeting in the Year of the Rooster.

'The last two races featured very strong betting - $137 million for race nine and $133 million on the final event,' Engelbrecht-Bresges said. 'It shows once again that in an improving economy, if we are able to offer the right product, the customer will come back.

'But I warn everyone against complacency. This cannot be regarded as growth because we are right at the bottom of a trough that is seven years deep. This may hopefully be a levelling out, but it is not a turnaround.

'What it does is to give us a breather, to have a look at our opposition and reposition ourselves for the future. And I have to say, in an era where there is competition like never before, we urge the government to seriously consider our request for taxation reform and take a long-term view of this business.'

Annual betting turnover peaked at $97 billion in 1997 and has been in decline ever since, hitting $65 billion in 2003-04. Last year, the Jockey Club put a comprehensive reform package to the government, addressing the weakness in the system of taxing turnover and suggesting it be replaced with a gross profits tax.

Bearing in mind the virtual guarantee of further erosion of betting turnover (and therefore tax revenue) if nothing is done, the Jockey Club has even offered the government a written guarantee to maintain tax revenues at their present levels if the reforms are passed.

The government is understood to have come back wanting the guarantee set at a higher level, which the Jockey Club describes as 'unreasonable' given it is now in season number eight of turnover freefall.

'To be competitive and to sustain growth in this industry, this matter has to be addressed,' Engelbrecht-Bresges said. 'There will be another letter from the Club, going to Treasury. I guess it is safe to say there will be a further exchange of ideas.

'We are willing to take a significant share of the risk [related to the size of the guarantee] but one party cannot take all the risk in this world. It becomes question of what is reasonable.

'In England when they passed their wagering tax reforms a few years ago, the British government did not even ask for a guarantee of any kind. Their government was actually willing to take a cut in the revenue it received, for the betterment of the industry, and without expectations in year one. Ultimately, that move stimulated the revitalisation of their wagering industry,' he said.

The recent decision to allow one-way betting from Macau has spawned a small cash-flow back to Hong Kong - yesterday's Macau-generated turnover was $19 million - but it may prove to be a platform for significant commercial competition, as the Macau Jockey Club continues to license more bookmakers to bet on Hong Kong racing.

Their commercial advantage lies in their ability to discount the tote, something that would have far less impact if the take-out rates on win, place and quinella were reduced from 18 per cent to 10 or 12 per cent under a profits-tax system.

'Now is the time for structural reform,' Engelbrecht-Bresges repeated. 'Now that the economy is improving and turnover is starting to level out, now is the time to lay the foundation for the future. The structural reform to the way racing is taxed is critical to our future, but I stress it must be win-win.

'If we are given the reforms we seek, I have absolutely no doubt Hong Kong will be offering the best racing-wagering product in the world. Nothing, anywhere, will be able to match it.'