The SAR's large fiscal deficit must be tackled immediately, Chief Executive Tung Chee-hwa said on Wednesday, stating the need to boost economic growth, cut public expenditure and raise revenue. Mr Tung said in his annual policy address that solving the deficit - which has ballooned to $70.8 billion - was the Government's ''top priority''. ''It has reached a critical stage. If not tackled immediately, it will become an insurmountable obstacle to our efforts to ride out the current economic difficulties,'' Mr Tung said. The Chief Executive said the causes of the large deficit included: increases in welfare spending, a drop in revenue from land sales, a decline in tax revenues and the postponement of the second offering of Mass Transit Railway Corporation shares. ''As a result, the fiscal deficit for the first eight months of 2002-2003 amounted to $70.8 billion. We estimate that when the current financial year closes at the end of March, the deficit will hit a record high of over $70 billion, representing more than five per cent of GDP,'' he said. The deficit was affecting Hong Kong's economic performance, he said. ''Although our overall real economic performance improved slightly in 2002, our GDP in current dollar terms registered negative growth after taking into account the effects of continued deflation,'' Mr Tung said. ''To eliminate the deficit, we must adopt a three-pronged approach: boost economic growth, cut public expenditure, and raise revenue,'' he said. ''We should be able to basically solve the deficit problem within a few years. Our target is to reduce, through various means, the Government's projected spending of $220 billion in the operating accounts in 2006-2007 by $20 billion. ''We also tend to introduce appropriate tax increases and adjust Government fees an charges upwards to help eliminate the fiscal deficit.'' Detailed arrangements would be announced by the Financial Secretary in his Budget, he added. In keeping with the aim to resolve the budget problem, Mr Tung said he and other top officials will take a 10 per cent pay cut. As protesters outside the venue for Mr Tung's policy speech, the Legislative Council (Legco) building, griped that the Government favours only the rich, Mr Tung said that by cutting his own pay, he would ''share the hard times with the community''. ''I am convinced that by joining hands with the community, the Government can reduce its expenditure and contribute effectively to solving the fiscal deficit problem,'' Mr Tung told Legco.
