The key to solving Hong Kong's deficit is to broaden its narrow tax base by introducing a sales tax, according to accounting firm PricewaterhouseCoopers. Guy Ellis, a partner in the company's tax services division, said it would be unrealistic to believe an improving economy alone could help achieve a balanced budget. 'The government must at some point introduce a sales tax to draw a larger portion of Hong Kong's 3.2 million working population into the tax net,' Mr Ellis said. 'Right now only about a third of that group is paying any direct taxes.' But he also believed the government would wait for a better time to introduce any form of sales tax, something he did not expect to be in place until 2008. Mr Ellis urged the public not to expect any surprises from Financial Secretary Henry Tang Ying-yen's budget speech on March 10. 'Mr Tang will certainly want to make his maiden budget a memorable one, but we do not expect any new taxes to be announced in this one, nor in the one to follow.' The firm predicts Mr Tang will announce a deficit of about $54 billion, a significant reduction on the revised deficit forecast of $78 billion he issued in October. Mr Ellis said the improved position was a result of stronger revenue from stamp duty and better-than-expected investment returns from the exchange fund. 'We hope that the government will resist the temptation of saying that the deficit has now become less of a problem because of this. Investment returns are something that could have gone either way,' he said. Mr Ellis also ruled out the suggestion of using bond sales to finance the deficit. The interest paid to borrowers would become a burden on government expenditure in the future, he said.