SIR Hamish Macleod yesterday brought down a Budget which should be the envy of the developed world. In what other country could the government cut salaries tax and profits tax - taxes that already are low by world standards - order big increases in spending on social welfare, health, education and roads, and still produce a surplus? If the Financial Secretary's forecasts prove correct, the surplus will help produce reserves of more than $260 billion, to be handed over to the Special Administrative Region government in 1997. The Budget is generous - but Sir Hamish could afford to be big-hearted. As he said, the task of this Budget was to manage prosperity. That this is so is a tribute to the Government and its basic philosophy of keeping its own activities restrained to allow the private sector to blossom and to the productive energy of the people of Hong Kong. It is a tribute, too, to fortune - the good fortune of being in the world's fastest-growing region and the bad fortune of a sky-rocketing property market which nevertheless keeps filling the administration's coffers. The salaries tax concessions will help ease the financial burden on millions of people. The profits tax cut should help to make Hong Kong business a little more competitive. The forecast reserves awaiting the new sovereign government in 1997 should calm China's fears that borrowing to build the airport and related projects would risk leaving the SAR bankrupt. HIGH GROWTH NEEDED All this is based on the assumption of continued high economic growth. Growth in 1994-95 is estimated to stay at 5.5 per cent - well above growth rates in other developed economies. The territory's growth should be helped by better performance in the United States and United Kingdom and by continued rapid expansion in China. Unfortunately, another key figure is forecast to be unchanged in 1994-95: the rise in the cost of living will again be 8.5 per cent, eroding the gains people will make from tax cuts and salary rises. As the Budget is in surplus, it should make a small contribution to keeping inflation controlled. But the tax cuts will fuel more consumer spending, helping to push inflation up. The property boom will continue to be one of the biggest contributors to inflation. Sir Hamish admitted that Government moves to try to control property prices (including the restrictions on mortgage lending) had been ineffective. He proposed a number ofmeasures to increase the supply of new land and building sites and cut delays in getting projects finished in an effort to control prices. But he also decided to reduce the impact of property stamp duty for lower-and medium-priced flats. Making it easier for people to buy homes is desirable socially but the effect of higher demand will be to pull prices up. The Budget will not keep a lid onthe price of property. Inflation, however, is not the only cloud on the budgetary horizon. The territory's dependence on China, which accounts for so much of our prosperity, also brings risks. BEWARE THE FALLOUT One flows from the possibility that China's economy will grow too quickly, producing a bust to follow the present boom. That would hurt Hong Kong businesses and families and make nonsense of the Budget forecasts. Another comes from the annual debate over China's Most Favoured Nation (MFN) status with the US. If MFN were not continued both the US and the Chinese economies would be damaged. The fallout for the territory would be devastating. The Budget documents estimate that if China lost its MFN status, Hong Kong would suffer a loss of up to $26 billion in income and of up to 75,000 jobs. Growth would be cut to just over three per cent. Little wonder that the Government supports China's case in this annual battle with the US. Hong Kong began compiling growth statistics in 1966. Since then the territory has enjoyed - and earned - 27 unbroken years of expansion. That historical fact is no guarantee that growth will go on. So people here should be concerned about China and its trade. We should hope that Beijing manages to keep high growth going without losing control. And we should hope that the US puts its muscle behind levers other than trade as it tries to press China for improvements in human rights. If those hopes are realised, the clouds will cast nothing but shadows on the bright economic picture. Hong Kong will have its 28th straight year of rising prosperity.