Hong Kong must consider radical solutions to its fiscal deficit, which is expected to be confirmed this week as a structural problem, according to experts. 'The whole saga of the fiscal deficit is just killing Hong Kong - it's making Hong Kong less productive,' said Steve Xu, head of Asia economic research for SG Securities. Mr Xu's comments came ahead of this week's report by a Government task force, which has examined the nature of Hong Kong's persistent deficits in recent years. High-level leaks from the SAR Government recently said the committee would find the deficit - estimated to top HK$60 billion this year - was caused by structural problems in the economy and would persist even when economic conditions improved. 'There has been a lot of emphasis on tax revenue and [the need to cut government] expenditure, but I think we should really look beyond that to what has happened to the spirit of free economy which had made Hong Kong the envy of other economies. Unfortunately, that has been eroded over the past few years,' Mr Xu said. 'I would focus on [the Government's] policy blunders in the housing market and the labour market. 'The deterioration of the fiscal deficit [estimated by SG Securities at HK$70 billion this year] is more to do with domestic issues in Hong Kong than September 11.' If a consumption tax were introduced to widen the tax base, it would not be introduced before 2004 or 2005, he said. PricewaterhouseCoopers tax partner Guy Ellis said the only way to raise the required amount of money to fix the structural deficit would be through a consumption tax or reducing personal allowances. 'Doing both has a bit of a double-whammy effect,' he said. Some temporary tax rebates were likely to be introduced in the first year of a consumption tax to soften the impact, he said. KMPG tax partner Jennifer Wong How-yee said the Government's reliance on property revenue was at the heart of the problem. Making matters worse, fiscal expenditure had continued to rise while the wider economy suffered deflation. 'If every single business is trying to reduce costs, why isn't the Government?' Ms Wong said. DSGAsia economist Simon Ogus said the Government needed to evict the one-fifth of public housing tenants who owned private flats and to close the wide loopholes which meant only 10,000 people paid the full 15 per cent tax rate. There needed to be signs of economic recovery before a consumption tax could even be contemplated.