Financial Secretary Donald Tsang Yam-kuen faces some tough choices in his Budget three weeks from now. With the fiscal deficit set to exceed $50 billion for the current financial year, and the Basic Law requiring him to strive towards a balanced budget, increasing government revenue will clearly be a priority.
One source of extra income is likely to be the resumption of land sales, a move now backed by even many of the biggest property developers. But, given the still depressed state of the property market, the revenue this raises is unlikely to be enough, by itself, to make good the budget deficit. Hence the need to consider some form of tax increase.
Raising taxes in a recession is sure to be unpopular. For this reason, any direct increase in rates or salaries tax would almost certainly prove politically impossible. But there is one duty increase that opinion polls suggest the public would be prepared to accept, in preference to other forms of higher taxation.
That is an increase in the levy on diesel fuel, a step Mr Tsang proposed in last year's budget, only to have it vetoed by legislators, who feared upsetting the powerful transport lobby. Worse still, the Government then went on to cut temporarily the duty on diesel fuel as part of last June's package of economic rescue measures.
This reduction is due to end in April and, at the very least, Mr Tsang must use this budget to make clear there is no question of extending it. Already the Government is under pressure instead to cut diesel duty still further, with transport representative Miriam Lau Kin-yee set to move a motion urging this in the Legislative Council today.
While this will prove popular with her constituents, at a time of record air pollution levels it is difficult to imagine anything more irresponsible. Diesel fumes are one of the biggest contributors to the worsening air quality and such fuel must be priced on this basis, especially if the plan to switch all taxis to liquefied petroleum gas is to succeed.
