HOW NICE TO know that Financial Secretary Henry Tang Ying-yen thinks the fiscal deficit may be reduced if the economy continues to show recovery. I could list some other beliefs of the same nature, for instance that night vanishes when the sun rises or that you will get wet if you jump into water. Who has ever doubted that higher than expected economic growth will bring in more fiscal revenue than expected and will help trim the fiscal deficit? We all know this and it is not the big question with which Mr Tang must deal. The question for him is rather whether it will be a lasting improvement if he does not also undertake some major fiscal reforms. Let us look at the longer term record here first. The red line in the first chart shows you the history of the government's annual revenues on the consolidated account. I do not absolutely swear by the number pre-1997. I have made adjustments here to incorporate property revenues that were excluded before the handover in 1997 and there are other bits of juggling that could or could not be incorporated. The figures cannot be much in error, however. The blue line represents annual gross domestic product and, to fit the figures into the chart on the same scale as government revenues, I have divided those GDP numbers by five, a minor cheat as it does not change the trend. I have also made one other adjustment, perhaps a bigger cheat. The GDP represented here is GDP after taking out the figures for net foreign trade, which I have done because there is not much fiscal revenue from foreign trade. Accept my adjustments and you can see a clear correlation between GDP and revenues. One other feature stands out as well on this chart. The ups and downs of GDP growth, over the past seven years in particular, were reflected in an even greater up and down trend of revenues. The last surge of the boom economy in 1997 produced a surge in revenues, which tailed off again just as rapidly with the downturn of growth in 1998. The brief economic recovery in 2000 had the same effect and then down went the revenues as the economy settled into contraction once more. That last blip up in revenues was probably an anomaly. It represents a convenient revenue improvement in March this year, which just happened to be the last fiscal month of the year and made the last financial secretary look good at a time he needed it. Clearly, however, Mr Tang's hopes are soundly based. If I present this chart again a year from now and the blue line representing GDP has proved to move up, then count on it that the red line for revenues will show an even greater improvement. Mr Tang may be pleasantly surprised by how much his revenues have grown if it happens and it certainly is the most likely prospect at the moment. But no lasting improvement will occur if we continue to have a narrow base for salaries tax and if we continue to derive property revenues almost entirely from sales or lease terms rather than deliver a more recurrent and stable base of real estate income. It will not be one if we continue to give our most lucrative development sites to government corporations on sweetheart terms. Sooner or later something will arise to drive GDP growth down again and, when it does, there will be an exponential downward impact on revenues. The second chart gives you an idea of what the longer term scenario could be if things go wrong this way. What Mr Tang is likely to have over the coming year if GDP growth favours him is breathing space for some long-required fiscal reforms. He may find those much more difficult to introduce when the cycle turns down again at some point in the future. What we need from him now is not expressions of relief but of determination.