Trying to guess who will replace former financial secretary Antony Leung Kam-chung has become a popular pastime in Hong Kong since his sudden resignation last week. But more important is how Mr Leung's successor, whoever it is to be, will go about tackling the huge problems facing the economy. We were again reminded of the scale of that challenge yesterday when accountants Ernst & Young predicted the fiscal deficit will soar to more than $85 billion this year, as a result of the impact of Sars. This is $17 billion more than the current estimate. But despite this setback, the problems that will face the new finance chief are the same - how to make the changes needed to tackle the deficit while helping the economy rebound. Mr Leung's departure provides an opportunity to go back to square one. But this should not be used as an excuse to give up on efforts to rein in the deficit. With unemployment at a record high, and the property market continuing to slump, the temptation to try to spend our way out of trouble is strong. But it must be resisted. Exercising fiscal discipline is key to restoring confidence in the economy. Mr Leung's target for balancing the books by 2006-07 is looking unrealistic but this should not be allowed to derail plans to cut expenditure and increase revenue. Rather, it means that the government will have to work harder to get its house - and its books - in order. Indeed, whoever takes over should be looking to bring about structural changes which will make Mr Leung's plans look like tinkering. On the spending side, there is still room for vast savings to be made. Mr Leung's target was to peg public expenditure at no more than 20 per cent of GDP, but this is still too high for a government which does not have the burden of a defence budget or western-style welfare schemes. Bringing spending down will involve further reform of the civil service. While Mr Leung introduced pay cuts along with measures to reduce the headcount and slice expenditure across the board, this is not sufficient to make our big and overly bureaucratic civil service more efficient. A wholesale review of size, costs and efficiency is necessary. Arbitrary targets and across-the-board cuts will not do the job of cutting the cost of government and making it more effective and productive. Indeed, the only chance of persuading civil servants that reform is necessary is to ensure changes are not arbitrary. Many overseas governments have experience in cutting back their operations, should our government need to look for outside help. A review would take time but it should not stop or delay a more sophisticated efficiency drive, taking a close look at what each department really needs to spend. This will be easier once the government moves to an accrual - or corporate-style - accounting, which it has pledged to do. Such a step would provide a clearer picture of the government's finances and a more informed basis for decision-making. It would pave the way for further measures which would give deep meaning to Mr Leung's concept of 'small government, big market', such as allowing the private sector to provide services currently handled by the government, and selling off public assets in order to raise funds. Small steps in this direction have been taken, but far more can be achieved. Once people are convinced that the government has done all it can to increase efficiency and slash costs, it will be easier to persuade them that the tax system has to be restructured to provide a more stable and productive source of revenue. A sales tax cannot be resisted for ever. None of this can be achieved without political will and toughness. But change is most needed when times are hard - let's hope the new financial secretary agrees.