The size of the Government will be reduced to help cut spending and restore a balanced budget, according to Financial Secretary Antony Leung Kam-chung. Mr Leung, who will deliver his first budget in March, said the private sector should take over more government services. 'My current priority is to focus on controlling government expenditure. In the process, we should allow the private sector to take a bigger role in delivery of various services,' he said at a British Chamber of Commerce luncheon yesterday. The finance chief has predicted the budget deficit might reach a record $60 billion in the current financial year. Mr Leung said it was his duty to bring the budget back to balance 'within a reasonable period of time'. The resources of the community, Mr Leung said, would be best used under market forces. 'Reducing the size of government would not only help address the fiscal problem, but also introduce more flexibility in our economy so that we could go through any future adjustment more quickly.' The question of introducing a sales tax to boost revenue would be discussed when the economy improved, he said. Referring to the currency crisis in Argentina, Mr Leung dismissed fears of any knock-on effect on Hong Kong. 'But the important message is that if our budget deficit is not resolved, it will trigger economic and financial problems. I think everyone should reflect on that.' With the Japanese currency collapsing to a three-year low against the US dollar, Mr Leung admitted it would have an impact on Hong Kong's economy. 'But how deep the impact and how sustained the impact is really depends on how much the yen will depreciate and over how short a period of time.' On the possibility of the US raising interest rates in the first half of the year, Mr Leung said increases implied the US economy was improving which would benefit the SAR economy. 'So we need not be worried about it having an adverse impact,' he said. Mr Leung has sought to dampen expectations of a breakthrough in talks with mainland officials in Shanghai later this month about establishing a free-trade zone. Describing the issue as extremely complex, Mr Leung said it would take detailed negotiation before an agreement could be reached. He said the Government shared businessmen's concerns as to whether local firms owned by foreign companies would benefit from a free-trade zone.