The Democratic Party, the biggest force in the pro-democracy camp, was quick to dismiss the agencies' concerns at the time. Chairman Yeung Sum even met with S&P representatives to assure them the party is fiscally responsible.

It now appears the party has taken further steps to counter the public perception that it is spendthrift. In the preface to its election platform, the party states that 'Hong Kong people have never sought 'free lunches'.'

While its platform on social welfare is still full of spending proposals, they are tempered by lines like 'the party opposes the free-lunch ideology' and 'poor people who are healthy should be self-reliant'.

The party's spokesman on economic affairs, Sin Chung-kai, admits the wording was deliberate. 'In fact, we've never been advocates of 'free lunches'. But since some people have used this term to discredit us in their sound bites, we are reiterating our position,' he said.

But despite the soothing words, in the critical area of public finance, the party doesn't seem to have retracted from its position that Hong Kong could afford to take a longer period to eliminate the budget deficit.

While the government has already moved its deadline for eliminating the deficit from 2007/08 to 2008/09, the party feels it should be further extended to 2009/10. It supports such capital-raising measures as issuing bonds and selling government assets such as tunnels and the Airport Authority, but is opposed to the introduction of any new taxes.

Above all, it has continued to urge the government to spend more of its savings. Four years ago, the party's election platform said the government should avoid 'excessive accumulation' of fiscal reserves. This year, it is urging their proper use, and is even demanding the government dip into another kitty - the Exchange Fund.

The fund was set up in 1935 for the foreign currencies held as backing for the Hong Kong dollar, and is managed by the Hong Kong Monetary Authority. For many years, the government has also placed its fiscal reserves into the fund so that it can be actively managed to earn extra returns. Investment incomes from the fund, in respect of the fiscal reserves, are then shared between the fund and the government, according to an agreed formula. They are a regular, though erratic, source of revenue.

The Democratic Party has proposed that the portion of investment incomes of the Exchange Fund not derived from the fiscal reserves should also be used to help bridge the deficit. Its election platform now says that such transfers should take place in 'lean years' and be capped at $30 billion a year.

Mr Sin said the size of the Exchange Fund had risen dramatically since 1997, when it was merged with the $211.4 billion Land Fund, which represented half the accumulated proceeds of selling public land between 1985 and 1997. At the end of June, the Exchange Fund's total assets amounted to $1,047.8 billion.

Since the handover, the returns from the Exchange Fund, not counting those derived from the fiscal reserves, had averaged $42 billion a year, he said. Transferring an extra $30 billion from the Exchange Fund would significantly help bridge the deficit without affecting the fund's strength, he added.

Mr Sin said the party had consulted some economists, who felt such occasional transfers should not affect monetary stability, as it would not involve a draw-down on the fund's capital and would affect only its rate of growth.

'We're not a profligate son trying to live on the fortune saved by our forefathers. But allowing the Exchange Fund to grow without any limits may not be best. When the economic situation demands, small sums from the fund should be used positively to stimulate growth,' he said.

Economists are likely to differ over the pros and cons of siphoning more of the Exchange Fund's annual returns to help bridge the deficit, as the fund is a key means of protecting the local currency. As Legco plays only a monitoring role under Hong Kong's political system, the chances of the Democratic Party implementing its policy platforms are virtually zero, even though it is expected to continue to form a significant voting bloc in Legco.

The party's stance, however, is likely to limit the administration's scope for manoeuvring as deficit-plugging measures must be endorsed by Legco. And because all the major political parties do not seem to share officials' sense of urgency about bridging the deficit.

The point repeatedly made by the government that it has a structural deficit, with recurrent revenue unable to cover recurrent expenditure - a problem that can only be solved by cutting spending or raising taxes - does not appear to have sunk in among the parties.

Across the political spectrum, there is a wide consensus to support extraordinary measures to raise revenues such as issuing bonds and selling government assets, rather than introducing new, steady sources of income.

The platforms of most major parties demand the government to drive more savings, but do not want it to curtail spending or introduce new taxes. Perhaps what is more worrying is an insistence by the major parties - with the exception of the Democrats in this case - to pay little more than lip service to such important areas of policy as public finance. The pro-business Liberal Party's emphasis is prudent financial management, as if the government's fiscal problems can all be solved by better management of resources. It is opposed to raising new taxes or fees and charges that may hurt businesses, and also wants a reduction of the tax burden on Hong Kong's middle class.

The platform of the pro-government Democratic Alliance for the Betterment of Hong Kong does not have a section dedicated to public finance. Its views on the subject are scattered over sections on economic and welfare policies. But the possibility of it siding with the pro-democracy forces to support drawing from kitties like the Exchange Fund, rather than cutting spending or raising taxes, cannot be ignored.

With the return of inflation and a recovering economy, the government's fiscal situation may improve, obviating the need to introduce drastic measures to balance the books. Should the government implement measures to cut funding for social programmes or raise new levies, the only thing that may moderate the political parties' opposition, according to the latest comments from S&P, is likely to be the public's desire to avoid confrontational politics.