Much has been said about the annual budget speech being an exercise in expectation management. Given the impact of the financial tsunami and with the near-term economic outlook uncertain, the public has not been expecting much in the way of handouts in this month's budget. Having been told repeatedly that the worst is yet to come, the community has readied itself for an unexciting budget. It was not long ago that pundits were predicting the fiscal deficit this financial year would be much bigger than the government's forecast of HK$7.5 billion. Last year it recorded a record fiscal surplus of HK$115.6 billion. But on Thursday, the game of expectation management took an intriguing turn when the government confirmed it had a net fiscal surplus at the end of December of HK$30.9 billion. Given that the last quarter of the financial year, which ends on March 31, is tax-payment season, there are reasons to believe that Financial Secretary John Tsang Chun-wah will be able to announce a surplus, albeit a modest one, in his budget speech on February 25. Mr Tsang was quick to dampen expectations of big government sweeteners in the financial blueprint. 'Having a surplus and the handing out of sweeteners are two separate things,' he said on Wednesday, and stressed that government revenue and expenditure tended to fluctuate sharply. That the financial chief moved so swiftly to manage public expectations that the community might now get a share of the fiscal surplus shows just how nervous the administration has become. The prospect of a surplus, and confirmation of healthy fiscal reserves, changed the pre-budget political game in an instant. Mindful of the danger of raising public expectations of the budget, political parties had, until last week, shown a degree of self-restraint and prudence. They had been slow to demand significant government spending on economic relief or any big tax cuts. The Liberal Party continued pushing its idea of giving everyone shopping vouchers, but the public was lukewarm about the proposal when the party floated it before Christmas, in part because of concern about the adverse effect of big spending on the public finances. However, since Thursday political parties have been pressing the government for budgetary concessions. Both the Liberals and the Democratic Alliance for the Betterment and Progress of Hong Kong called for tax rebates. The Democratic Party, though, was more cautious, and questioned the extent to which tax rebates would stimulate consumption. Once again, the government has fallen victim to what appears to be another embarrassing surplus. With less than a month to go until budget day, Mr Tsang is caught in a conundrum. The existence of a substantial surplus has put handouts back on the agenda, but at a time when the only certainty about the economy is uncertainty, he has to avoid sending conflicting, if not downright false, messages about the city's economic and fiscal health. He need not worry too much. Many members of the public, having experienced the protracted economic downturn that began in 1998 and seen the health of public finances fluctuate sharply, well understand that government handouts are not a magic wand to revitalise the economy. The government and society at large will have to tackle a raft of difficult problems. Handling the fiscal surplus flexibly and sensibly will help the administration come across as caring and responsive to people in need and may inspire some guarded optimism. That would be no bad thing. People are too pessimistic about the global and local economic prospects. If nothing is done to counter the downbeat mood, people will invest and spend less and the prophecies of doom will be self-fulfilling.