Hong Kong Financial Secretary Henry Tang said the government will consider cutting income taxes for the middle class to help boost the territory's flagging economy, but may raise taxes for others, his spokesman said yesterday.

Tang said the government, which is battling chronic budget deficits, would weigh options such as allowing fewer income tax exemptions and charging higher taxes for certain income levels, according to his spokesman Laurie Lo. He did not give details.

According to the government, only 1.2 million of Hong Kong's 6.8 million people are required to pay income tax in the fiscal year 2002-03.

Hong Kong never fully recovered from the 1997-98 Asian financial crisis, and the government has been struggling with budget deficits for four years. Making matters worse, the SARS outbreak devastated the territory's tourism sector, and prompted huge jobs losses.

The government has been seeking ways to revive the economy and plug the deficit. Tang has said officials were studying a possible sales tax, but he added it would only be implemented after Hong Kong has emerged from its prolonged economic downturn.

Lo quoted Tang as saying officials may consider granting sales tax exemptions to tourists, retail and tourism-related businesses.

Hong Kong prides itself as a center of free enterprise, making a tax on goods and services an unwelcome idea in this territory. The Chinese-language newspaper Hong Kong Economic Journal warned that introducing a sales tax would be equivalent to "political suicide."

"In the time when consumer spending has not been fully revived and the economy has not recovered its full strength to grow, introducing a sales tax ... would be no different from a political suicide," its editorial said. "Raising taxes in this political and economic environment will not only be a futile but also an inappropriate move."

Antony Leung, Tang's predecessor, had estimated that the territory faced a deficit of HK$67.9 billion (US$8.7 billion) this fiscal year, ending on March 31, 2004.

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