The Hong Kong Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product. So says Article 107 of the Basic Law. You can see where Financial Secretary Donald Tsang Yam-kuen might feel a little torn. He has been running a bit of a deficit of late - and even though the recent upturn in the economy will see that deficit run in lower than the previously forecast $36 billion, a deficit is still a deficit and the law clearly states that this is unacceptable. When Mr Tsang first floated the notion that he would be running a deficit budget it was widely accepted as an unfortunate but necessary fact of life. Difficult, if not desperate, economic times were threatening to engulf Hong Kong as they had the rest of Asia. But the deficit was only to be a temporary blip on an otherwise blemish-free balance sheet. Unfortunately, the economy is showing signs of having made a structural shift that will curb the Government's ability to raise revenue in the long term. The importance of land sales as a source of revenue appears to be diminishing and competition for the Jockey Club in the form of on-line gambling will probably see a reduction in betting tax income. Switching public vehicles from diesel to liquefied petroleum gas will inevitably affect revenue from fuel duty. Adding to the problems has been the narrowing of the base of income taxpayers. Last year, only 5 per cent of taxpayers were charged at the full rate of 15 per cent - 66,565 people from a workforce of 1.33 million. This compares with the 78,002 people who were taxed at the top level a year earlier. The recession has underlined how vulnerable this revenue stream is and Mr Tsang may well be ruing the three occasions on which he raised the tax threshold. But before we get carried away with arguments to levy more taxes it is worth remembering the second part Article 107. Not only must the Financial Secretary aim for a balanced budget, he must also keep Government spending in line with GDP growth. Ideally, of course, he should aim beneath that target. But what we actually have is a Government that has been sucking up tax dollars faster than the economy can churn them out. Spending as a proportion of GDP is forecast to hit 20 per cent in the financial year beginning in April. That is up from about 14 per cent in 1987-89. Before the Government seeks to increase the tax burden of the private sector perhaps it should trim some of its own flab.