A deficit budget carrying tax reductions is within the Basic Law, according to political parties and a tax expert. A partner at Arthur Andersen and Co, Marcellus Wong Yui-keung, said an article in the Basic Law did not bar the SAR from drawing down a deficit budget. He said: 'The budget need not balance every year. We can have fiscal balance in three to five years' time which is still acceptable to the public and the Basic Law.' Article 107 of the Basic Law says the SAR Government should 'strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product'. The Government conducts a medium budget review every five years. Leaders of major political parties agreed the Government had the capability to endure a drop in tax revenue, with an estimated surplus of $31.7 billion for the 1997-98 financial year. The SAR has accumulated a $400 billion surplus. A corporate tax cut from the present 16.5 per cent to 15 per cent would only result in a drop of $2.7 billion in revenue for the Treasury. Political parties' representatives maintained raising personal tax exemption from $100,000 to $106,000, a freeze of government fees and charges, and a general rates cut could allay people's fears and jump-start the faltering economy. Sin Chung-kai, the Democratic Party's spokesman on economic issues, said: 'While other countries can stimulate their economies through interest rate and currency controls, we are left without these measures.' Ronald Arculli, of the Liberal Party, said: 'Cutting corporate tax would help companies and provide foreign investment incentives; corporations have a leading role to play.' Corporate tax accounts for more than 40 per cent of revenue, and about 1.4 million salaried workers are covered by the tax net. Party leaders warned at the City Forum yesterday that the Financial Secretary would face public discontent if there were no tax cuts in his Budget on February 18. Lau Kong-wah, of the Democratic Alliance for the Betterment of Hong Kong, said Donald Tsang Yam-kuen 'would be booed off rather than gaining short-term applause' if he stressed only the long-term economic development and failed to act on people's immediate concerns.