Homeowners who have lived in a flat for more than three years should have part of their stamp duty refunded, while tenants should be able to claim rent as a tax deduction, a global accounting firm has proposed. The suggestions from Deloitte Touche Tohmatsu came as it forecast a HK$10 billion budget deficit in 2012/13 - three times an earlier official projection. The firm said this was due to an expected drop in land premiums and an increase in spending, including the proposed old-age allowance. Deloitte partner Yvonne Law Shing Mo-han said another reason for the deficit was an expected HK$8 billion decrease in profits tax from the previous year. "Due to an economic downturn, we've seen a lot of companies filing for holdover of provisional tax recently," Law said. Companies foreseeing an annual profit that is less than 90 per cent of that of the preceding year are eligible to apply. The government in February predicted a deficit of HK$3.4 billion. Deloitte projects government expenditure will rise by HK$14 billion and land premiums will fall HK$4 billion. Law described the deficit as affordable given last year's surplus of HK$669.1 billion. The firm also recommends more tax concessions that could drag down government income a further HK$10 billion a year. For example, it says medical insurance and medical expenses of up to HK$20,000 a year should be deductible. On stamp duty, Law said the middle class needed some relief. People who had lived in a flat that was their principal residence for three years should get a rebate on the stamp duty on the first HK$4 million. That would be HK$90,000 at the current rate. Alternatively, buyers should be allowed a one-off deduction of stamp duty from their salaries tax to a maximum of HK$100,000. Tenants, meanwhile, could claim their rent as a deduction, in the way that buyers could claim mortgage interest deductions. Deloitte also argues that the mortgage interest policy should be relaxed, doubling the term of the concession from 10 to 20 years while including principal payments in the HK$100,000 tax concession that now applies only to interest. This would mean buyers could enjoy the tax advantage to the fullest, Law said. Dr Lawrence Poon Wing-cheung, a spokesman for the housing panel of the Institute of Surveyors, said the proposals on stamp duty and tax deductions for mortgage principal were not appropriate under existing conditions and run against measures to curb demand. "There is not enough housing supply at the moment. The proposals would only encourage people to buy property ... It is dangerous to encourage people to buy a home when property bubbles are forming," Poon said. The proposed tax deduction for rent should only be a short-term relief measure, to be withdrawn when rents came down, he said. Eligibility limits should also be carefully considered to avoid subsidising the well-off.