WITH China looking over its shoulder and an assertive Legislative Council crying out for more welfare spending, Hong Kong's first locally-born financial secretary has to walk a tightrope. It is against this background that Donald Tsang Yam-kuen should be commended for being able to introduce several new initiatives with significant long-term implications, while sticking to what he dubs the 'seven heavenly virtues' of prudent public revenue management. These new initiatives include a salary tax allowance for dependent siblings, a deduction of up to $12,000 per year for training fees, allowing elderly people on welfare to receive their payments on retiring to China and setting up a mortgage corporation. In financial terms, these tax allowances will have no great impact on the public purse, but offer great relief to the beneficiaries. As Mr Tsang noted in his post-budget press conference, many people had to pay for the education of their brothers and sisters. His hope is the new measure will encourage people to put their siblings through university as well. Allowing people to get a tax deduction for fees for training courses is an encouragement to those who make the effort to upgrade their skills to meet changing career needs as the economy undergoes structural transformations. Working adults enrolled in the Open Learning Institute and other part-time educational programmes, for example, have long complained their tuition fees are not subject to tax relief. The two measures underline the great importance the community has always attached to family and education values which underpin the social cohesion and prosperity of Hong Kong. The decision to allow senior citizens to continue to receive public assistance payments on retiring to China is a timely recognition of the fact that Hong Kong, after all, will become a part of China again in less than 500 days. Traditionally, Chinese have likened themselves to fallen leaves dropping back to the roots of a tree, and always longed to return to their home towns in old age. While the post-war generation who were born and brought up here regard Hong Kong as their home, many elderly people who spent their early years in China, particularly those who are single and survive on public assistance, do want to go back to their place of birth to be with their relatives. BUT existing rules barring them from receiving welfare payments if they are away from Hong Kong mean they are condemned to a lonely and miserable life on their meagre payments here. The new measure is therefore a welcome change because the welfare payments, set at Hong Kong's subsistence level, will allow elderly people to live a comfortable life in their home towns where the cost of living is much lower. As links between Hong Kong and China improve after 1997, the measure is also likely to encourage the development of retirement villages across the Pearl River delta, where the ancestral towns of most Hong Kong people lie. Some moral issues could be raised by Hong Kong 'exporting' its elderly citizens. But provided the relocation takes place voluntarily, there is no reason to stop it. After all, elderly people with families and relatives in Hong Kong are unlikely to take up the option and the budget has provided for improved elderly services here. The setting up of a mortgage corporation, apart from being a boost to Hong Kong's status as a financial hub, should also make home ownership more affordable. For a long time, economists have noted that banks are reluctant to offer cheaper loans on long-term interest rates. This is because banks rely on short-term borrowings from depositors to finance mortgage loans, which therefore have to be provided on more expensive short-term rates that are susceptible to volatile movements. Securitisation of mortgage loans will enable banks to transfer their loan portfolios to long-term investors so they can offer cheaper packages to home buyers on long-term rates. Coupled with the proposal to reduce stamp duty rates on transactions of lower and medium value flats, securitisation should make home ownership within the reach of more families. Overall, by introducing these new initiatives, offering more than expected rises in salary tax allowances and increasing social security payments, Mr Tsang has produced a budget which should please most working-class people. A word of caution though. The generous tax allowances mean 61 per cent of Hong Kong's workforce will pay no salaries tax at all. While this is a crowning achievement for Hong Kong, where the Government provides heavily subsidised housing, hospital and education services for most of the population, it also means the average members of the public will continue to have scant regard for the cost of welfare provision. Unlike most other societies where a rise in welfare provision must mean a corresponding rise in taxes, Hong Kong is unique in funding additional expenditure on improved services out of a very narrow tax base and at very low rates. There is a danger people are so used to getting social services at little or no cost at a personal level that they keep asking for more with no regard for where the money comes from. Some years ago, there was talk of introducing a sales tax to broaden the tax base. But as Mr Tsang noted in a radio phone-in programme yesterday morning, the idea was a non-starter in the current political climate. Which means the Government will have to continue to face the struggle of funding incessant demands for more welfare out of a narrow tax base where funding fluctuates with the ups and downs of the economy. The generous increases in social security payments has also generated concerns about fairness. IN yesterday's phone-in programme, a number of callers, some of them low-income earners, were aghast that while they supported their families on incomes of about $5,000 a month, a four-member family on welfare will on average receive about $10,270 a month under new rates introduced in the budget. Some of the complainants might in fact be eligible to apply for social security payments to top up their incomes. But a sense of pride might have stopped them from knocking on the doors of the Social Welfare Department. Hong Kong is far from breeding a state of welfare dependency but it is something which the community must be vigilant about. Rather than enhancing direct payments to the needy, the community will benefit far more from programmes which help the poor out of poverty and dependency. As one caller, who was a single parent, told Mr Tsang she wanted to work, but had difficulty finding affordable child care services. Mr Tsang's decision to publish various policy branches' action agendas on the service sector as an appendix to the budget also deserves attention. While the agendas mostly restate existing plans, it is reassuring to the community and the industries concerned that the Government is serious about helping Hong Kong's development as a service economy.