The budget deficit will top $70 billion at the end of the financial year in March - a record amount that represents more than 5 per cent of gross domestic product, Mr Tung said. He executive said cutting the shortfall was top of his priority list and warned that higher taxes and fees may be brought in to achieve this. However, he gave no details and left the proposals to his top aides. 'Solving the deficit is the government's top priority,' Mr Tung said. 'If it is not tackled immediately, the deficit will become an insurmountable obstacle to surviving Hong Kong's current economic problems.' He said cutting it would require economic growth, along with spending cuts and increased revenue. 'We also intend to introduce appropriate tax increases and adjust government fees and charges upwards to eliminate the fiscal deficit,' he said. But Mr Tung sought to reassure his audience that whatever measures were taken, the government would strive to ensure they would not add significantly to deflation or - in the case of increased taxes, fees and charges - fundamentally change the primary principle of maintaining a simple and low-tax regime. The $70 billion full-year deficit forecast is 17 per cent higher than the previous official estimate of $60 billion given by Financial Secretary Antony Leung Kam-chung in the autumn and two-thirds higher than the $45.2 billion government estimate given at the start of the financial year. Hong Kong had suffered from 50 months of deflation, which resulted in prices being 13 per cent lower over that period, Mr Tung said. The full-year deficit forecast presumes that tax revenue, which usually starts coming in at the end of the financial year, will not contribute to cutting the deficit substantially. From April to November, the deficit hit $70.8 billion. Mr Tung outlined the causes of the mounting shortfall, including higher social service payments amid a slumping economy, reduced income from land sales, lower tax revenues and the delay in selling a second batch of Mass Transit Railway Corporation shares. Government spending, which continues to grow at an average annual rate of 5 per cent, outpacing the economy's growth, also needs to be reined in, he said. Mr Tung offered few tangible proposals, saying instead that Mr Leung would propose specific measures to solve the deficit in his March Budget. The economy stalled in the first half of the year and sputtered to life in the third quarter, boosted by exports to the mainland and the rest of Asia. Mr Tung said the deficit's direction would depend heavily on whether an economic recovery could be sustained. Guy Ellis, a senior tax partner at accounting firm PricewaterhouseCoopers, said: 'There's nothing particularly new that we heard today,' while Yvonne Law, a senior tax partner at Deloitte Touche Tohmatsu, said the most important aspect of the address was whether the government could deliver on its promises.