The budget speech is full of positive surprises. The absence of any fiscal tightening measures, both on the revenue and expenditure sides, would allow the economic recovery to gain further pace. We expected real GDP growth to reach 5.5% in 2000.

While the broadening of the tax base is necessary in the longer term, the introduction of a sales tax needs to be carefully studied. In countries where a sales tax was first introduced, the government usually lowered the income tax rate to offset the rise of tax burden of the poor. In Hong Kong, however, more than half of the work force is already not paying any salaries tax. A reduction of salaries tax rate is not going to benefit the lower earner majority who would be hit by the sales tax. A sales tax can also be administratively burdensome. The government has to evaluate the pros and cons carefully.

The introduction of a progressive profits tax system may not be necessary, as it may hit Hong Kong's competitiveness and discourage more profitable companies from doing business in Hong Kong.

The budget's suggestion to increase spending on education and training is welcome. This will help enhance Hong Kong's long term competitiveness.