When he was elevated to the top financial post in late 1995, Donald Tsang Yam-kuen said he wanted to keep his job over the following five years. He was tipped to be Anson Chan Fang On-sang's successor as Chief Secretary, but that was scuppered when she accepted Chief Executive Tung Chee-hwa's invitation to stay on until 2002. Now, with his fifth Budget on the drawing board, Mr Tsang has reportedly said in private that he will stick to his plan, and his next Budget will be his last. He has had a more turbulent time than other financial secretaries. As the first ethnic Chinese in the job, he faced unprecedented problems in managing finance and surviving the sovereignty changeover after he took over from Sir Hamish MacLeod. In the face of a sceptical Beijing leadership, Mr Tsang had to quell the conspiracy theory that the colonial administration would deplete its coffers before the changeover. In the recession that followed on the heels of the handover, he has had to juggle a deficit rather than having the easier task of deciding how to spend the previous surpluses. And unlike many of his senior colleagues, the flamboyant mandarin found his job more vulnerable to the political fallout of Sino-British diplomatic game. Rumours were rife within the pro-Beijing circle that he was among the 'top three' who must be removed. The others were in the posts of Chief Secretary and of Attorney-General, now renamed Secretary for Justice. Bearing in mind the practical difficulties of introducing drastic changes to the Budget formulation, Mr Tsang set his sights beyond 1997 so that he had ample time to put his thoughts into the management of finance. Precisely what he has in mind this time is anyone's guess. What appears to be certain is that the financial chief does not want to let what could be his last show boil down into a lacklustre event. There are enormous difficulties in breaking new ground and venturing fresh initiatives, however. Suffering from the second consecutive year of budget deficit, Mr Tsang is anxious to keep the shortfall to a modest $5.6 billion, as he forecast in March. And if there is a better-than-expected improvement in revenue, he can declare early success in putting the SAR back on a healthy footing. The goal of seeking a balanced budget, however, is hardly compatible with political parties' demands at election time. Two major political parties called for more government spending at the expense of a higher deficit to help stimulate the economy when they met the Financial Secretary last week. The Democratic Party says a deficit of not more than $39 billion, which is about three per cent of the gross domestic product, will be acceptable. On top of the forecast $5.6 billion deficit, the Democratic Alliance for the Betterment of Hong Kong gave the green light for a further $10 billion in deficit. Despite their sharp differences in political issues, the two leading parties concurred on the broad approach in formulating next year's Budget. In addition to accepting the need for a bigger deficit, they opposed the introduction of new taxes such as a land departure tax, or raising the basic tax rate. If tax hikes are to become inevitable, the Democrats say the axe should fall on the rich and the high-earning corporations. Senior officials said earlier at private meetings the burden on tax hikes would be lessened if the forecast whole-year growth rate of 0.5 per cent can be fulfilled. There are now more indications that that target will be achieved. Speaking at various occasions after the publication of the Policy Address, Mr Tung expressed confidence that there will be a two per cent growth in the second half of this year. If so, a 0.5 per cent growth in the 1999-2000 year is very likely to be secured. More important, that would confirm the trend of a gradual pickup from one of the worst recessions in the past decades. This appears to be the best scenario the Financial Secretary can hope for under the present circumstances. Any idea of revenue-raising tax measures, albeit small ones, is unrealistic at a time when the people are still suffering from economic woes. The strong opposition to the suggested levy of a departure tax at the Lowu border crossing and a possible increase of water charges floated by officials last week should come as no surprise to Mr Tsang and his aides. The fact they have been raised for public debate at the early stages of Budget consultation shows officials are desperate to widen the source of revenue by raising new taxes and to secure stable revenue through adjustment of government fees and charges. This is despite the unpredictable political and social cost for snapping a new tax on travellers going to Shenzhen in return for an additional revenue that is unlikely to exceed $1 billion each year. And although Mr Tsang could argue for an increase of government fees and charges on grounds that the economy has recorded positive growth, he would face challenges against the justifications for a hike at a time when the overall economic situation remains volatile. Worse still, government hikes in fees could trigger a wave of increases in public utilities. The proposed rise in fees by three tunnel companies revealed last week is hardly a coincidence. Such increases might make some economic sense in helping to beat deflation, but are bound to create a public outcry. The crux of the matter is that there are grave doubts about the state of economy. The public's cool response to the rosy picture of the economy painted by the Chief Executive in his Policy Address reflects the depth of doubts on the economic prospects. The fall of the Hang Seng Index and the unimpressive results of the land sale last week are just some of the mixed economic signals in the past few months that many in various circles have found difficulty making sense out of. If the border tax and water charges hike have met strong resistance, the chance for any drastic changes to the profit and salaries tax is even more remote. This is because changes to the two major taxes or the introduction of a sales tax are bound to trigger a divisive debate in the community on who should pay for government services. Furthermore, any plan to raise profit tax to raise revenue will send a bad signal to investors on Hong Kong's low tax system and its predictability. Senior officials conceded the room for new revenue-raising measures as well as cutbacks in spending were extremely limited under present circumstances. With two sets of elections upcoming, political parties are unlikely to take a sympathetic attitude towards any tax increase, said an official. The first District Council elections are scheduled for November 28 and the second Legislative Council poll will be held next summer. It is more likely that now Mr Tsang has no other alternatives but to stick to a conservative and pragmatic approach in formulating his fifth Budget. In her defence of the Chief Executive's Policy Address, Mrs Chan said: 'There are no gimmicks, no empty promises.' Mr Tung, she said, had reaffirmed the SAR's fundamental economic philosophy - adherence to positive non-intervention, the free market and fair competition. 'Our role is to support and facilitate but not to direct or to pick winners,' said Mrs Chan. The same approach and message are likely to be followed by Mr Tsang in drafting his first post-millennium budget. In his 1999-2000 Budget, Mr Tsang delivered more than gimmicks and empty promises. There is an $8.5 billion tax rebate, two mega-projects - Cyber-Port and Disney theme park - plus an overhaul of the financial systems. He won some short-term applause. It was followed by harsh criticism and grilling about whether some fundamentals of the SAR's economic policy had been abandoned. In bad times, it might be politically unwise for government to appear to have sat on its hands doing nothing. But that is better than a government that makes things worse.
