The territory's well-tried formula for success would be eroded if the Government constantly offered financial subsidies and favourable terms at the expense of taxpayers, the Financial Secretary warned yesterday. Defending the dearth of new spending to stimulate the economy in the Policy Address, Donald Tsang Yam-kuen said it was more important for the Government to be prudent in handling public wealth during bad times. He said the administration should not ignore deficits and the long-term interests of Hong Kong by acceding to demands for more government subsidies and by 'handing out gifts' at regular intervals. 'By doing so, we will gradually depart from the provisions about keeping expenditure within our means in the Basic Law. Investors will doubt whether we have deviated from our proven effective fiscal management principles. 'More importantly, it will change the formula behind our past success,' Mr Tsang said. He was speaking in reply to legislators during the traditional Motion of Thanks debate on Tung Chee-hwa's Policy Address. He said the administration shared the public aspiration for quick fixes. 'Let's not talk about whether the Government has the skills of a magician and can always play magic by bringing out one rabbit after another from our pocket.' As a principled government, the administration must minimise spending in face of high deficits and the tight financial situation, Mr Tsang said. A $36.5 billion deficit has been forecast for this year. Mr Tsang said the Government hoped the public would understand its constraints and limitations. 'Under our prudent fiscal policy and with our beliefs in the free market, it is neither possible nor appropriate for us to take a dominating role in economic activities. 'We have learned from the turbulent economic times. People will ask: when are we going to fully recover?' Mr Tsang said he wished he could make a decision and say 'today'. But he was cautiously optimistic the pace of economic recovery would quicken. Hong Kong should meet the forecast of an overall 0.5 per cent growth in the economy in the 1999-2000 financial year, he said. Officials would make a detailed review of the annual economic forecast at the end of next month. Despite cuts in rents and wages, Mr Tsang said the future of the economy did not hinge on cutting costs. '[It lies with] the pursuit of quality, innovation and uniqueness. Facts tell us the education levels of a nation determines its pace of economic growth . . . how can we say education work has nothing to do with economy and employment?'