In view of the dramatic drop in the estimated deficit due to the strong economic performance of recent months, it is reasonable that the 2000/01 Budget does not propose a tax rise. As the Budget expects the economy to continue its vigorous growth in 2000, it would not be convincing if any increase in tax was put forward.

The government is considering new sources of revenue, including a consumption-based tax. However, what form such a tax should take requires much consideration. Should it be introduced via wholesalers or collected as a value-added tax. From the experience of Japan, the introduction of a consumption tax may not be beneficial to the economy at a time when consumer confidence just begins to recover.

As for the proposed US dollar clearing system for securities, it is expected that this system will reduce the pressure on the Hong Kong dollar and reinforce Hong Kong's leading role as a financial centre.

However, it is somewhat disappointing that the Budget does not touch on any measure to lower the size of the public sector in the whole economy. The public sector currently accounts for 21.9% of Hong Kong's GDP, compared with 16% in the 1990s. While pointing out the likely existence of a structural deficit budget and proposing a comprehensive study of new revenue sources, the government should also keep an eye on reducing public expenditure.