Financial Secretary John Tsang said yesterday that the government deficit this financial year will definitely be more than the HK$7.5 billion he predicted last year.

He cited falling revenue and relief packages as taking a heavy toll on city coffers.

Tsang pointed out that government revenue from land premiums, the biggest income source after profit and salary taxes, was only HK$12.4 billion in the first six months of the financial year, a far cry from the expected HK$43.1 billion.

And there is no reason to expect the next six months will be any better in this respect, he added.

On top of falling revenue, the government provided HK$10 billion to Sichuan earthquake relief and a HK$11 billion concessionary package to relieve the masses from their economic woes, thereby enlarging the deficit.

Tsang will deliver his second budget in February amid a completely different economic environment than last year, against the background of a economic downturn and a severe budget deficit.

Addressing the Legislative Council (LegCo) Panel on Financial Affairs, he said he will accord to measures that will create jobs, enhance Hong Kong's competitive edge and sustain Hong Kong's economic development.

He noted that lawmakers have proposed many targeted measures to stimulate the economy and improve people's livelihood.

"We are concerned with the impact of increasing living expenses on the low income and under-privileged people. We will continue to monitor the inflation trend and its impact on society," he said.

Civic Party lawmaker Tanya Chan questioned the reserve level the government should maintain. Chim Pui-chung, who represents the financial services constituency, asked Tsang's interpretation of Basic Law Article 107, which requires the SAR government to balance its budgets.

Tsang replied that although the government has about HK$450 billion in fiscal reserves, it might not be enough, given that foreign governments spent astrological figures on rescue packages.

As to the Basic Law requirement, he said he will strive to make ends meet over a period of time, but not necessarily every year. He pointed out that over the past 10 years Hong Kong has been able to fulfill the requirement.

Tsang also predicted the economic situation will be rather stern in early 2009.

As a result of the economic downturn, third-quarter GDP growth has slowed to merely 1.7 percent, investment and export slowed and unemployment worsened.

To stimulate the economy and create jobs, he said, the government should expedite procedures for the top-10 infrastructural projects and apply for funding from the LegCo in the coming months for 100 projects that could create 40,000 jobs.

On the popular issue of the shopping-voucher proposal, he noted foreign examples of people using the vouchers simply to buy daily necessities and save money.

That will not achieve the purpose of stimulating the economy, he said.

(HK Edition 12/02/2008 page1)