Accountants say figure could be $10b in the black The government's forecast of a $42.6 billion budget deficit this year might turn into a $10 billion surplus, a leading accounting firm said yesterday. But PricewaterhouseCoopers also expressed concern about the outcome of a lawsuit over civil service pay cuts, saying it could have a huge impact on efforts to balance the books by 2008-2009. Partner Guy Ellis said the surplus prediction stemmed from better-than-expected revenue from land sales and direct taxes generated by an improving economy. 'There might well be a headline with a surprise surplus figure in March,' Mr Ellis said. Even if this happened, however, there would still be a real deficit of $15 billion after stripping out returns from issuing government bonds and the securitisation of tunnels and a bridge that were loans rather than revenue. Amid uncertainty over the civil service pay cut, Mr Ellis said there would be a huge impact on the target of restoring the budget to balance by 2008-09 if the government were forced to pay civil servants $7 billion to $8 billion more a year. 'We may have to discuss the whole issue of government expenditure again,' he said. Another partner, Tim Lui Tim-leung, said this might complicate debate on whether a goods and services tax should be introduced. 'People will say that the government should first control expenditure before raising tax,' he said. Separately, the Hong Kong Institute of Certified Public Accountants said the government should only consider a moderate tax increase in the coming years. 'Basically we don't think the government needs to adopt further measures to achieve budget balance by 2008-09. But if there is a need to consider other interim taxes before the implementation of a sales tax, those levies should only be moderate,' said institute vice-president Paul Chan Mo-po. Options include lowering the income tax allowance to bring more taxpayers into the tax net, and to reconsider introducing a land departure tax. The institute also proposed more tax exemptions for charity donations and arts sponsorship.