The important thing is to see that the burden is evenly spread, and actually does do what the Government intends - namely to impose extra hardship in terms of cutbacks, fees and taxes in order that recovery can be faster, and more lasting. Once that goal is reached, we can look toward the day when most of these measures can be rescinded, and we return to the traditional low tax economy which has contributed so markedly to our prosperity in the past.

In general, though with some important reservations, I support this year's budget. My first proviso is that the Government does everything it can to protect the stability of the Hong Kong dollar which remains pegged. If it was to become vulnerable to attack by international speculators, attracted by a soaring financial deficit, interest rates would rise, and the whole of society, especially the middle classes - already struggling with negative equity - would face an intolerable burden. Under those circumstances, interest rates could go up to 10 per cent or higher, with obvious disastrous consequences.

The huge fiscal deficit - forecast to be $70 billion - is the greatest hazard facing this city today. It must be brought under control, and the quickest way to do that is to wield the knife fearlessly right across the balance sheet, but with particular emphasis on civil service pay. Time and again the Liberal Party has pointed out that 70 per cent of recurrent expenditure is staff costs. In my view, the Government timetable for reducing this by pay cuts of 6 per cent over two years does not reflect the urgency of the situation. There can also be no justification for keeping employees on the payroll when they are surplus to requirements. Salary levels in the civil service are far higher than the private sector.

Indeed, a recent survey by the Hong Kong General Chamber of Commerce comparing civil service averages with the upper quartile in the private sector, showed that the total remuneration (excluding housing benefits) for civil servants is 17 per cent higher. Add in the cost of benefits (but excluding housing and education) and the average total salary in the civil service is 40 per cent higher than the upper quartile in the private sector.

Furthermore, Hong Kong simply cannot afford a bloated bureaucracy. Everyone should earn their keep, or be removed.

Revenue raising measures are another matter. Most of the proposals are sound, and largely unavoidable. But here again it is crucial to maintain the proper balance, or well intentioned plans may turn out to be wholly counter productive. I think I can speak for the whole of the business community in saying that we will accept, with reluctance, the 1.5% percent increase in profits tax, in the hope that it is - like the majority of other tax increases - a temporary response to a financial emergency.

When the Liberal party met with the Chief Executive two weeks ago, I stressed to Mr Tung our concern about the impact too stringent measures would have on the middle class, the owners of small and medium enterprises, and professionals. These people are the backbone of our economy and they have already weathered some extremely tough times, simply struggling to stay afloat. Fortunately, the message got through to government circles, and the increase in salary tax will be phased in over two years.

However, I am concerned that if the Financial Secretary falls short of his target of raising an extra $6 billion through savings or earnings in the next four years, this sector of society will be forced to bear the burden.

It is all very well to talk of revising 3000 fees and charges in accordance with the principles of user-pays and full cost recovery, but the most essential move in helping SME's to survive, is to cut the cost of services as quickly as possible. It is unfair that companies should be penalised because of unreasonably high administrative costs. It would also be very counter productive in its effects.

I will look very carefully into the details of these revisions in the coming days and weeks. If fees and charges are too high, they will have a greater negative impact on the business sector than the increase in profits tax. The sums are not encouraging. If the 1.5 per cent profit tax brings in $3.5 billion dollars, and the remainder of the $6 billion is to be raised through higher government charges, the same people will be footing this bill too, which could prove the final blow to many small firms, with a consequent disaster for unemployment figures. It is no consolation to a beleaguered businessman to hear that he will not pay profits tax because he makes no profit, when he is faced with a series of increases for other government services. That is simply shifting the financial burden and exposing him to the prospect of moving from just clearing his overheads to having to close down or face bankruptcy. What benefit would Hong Kong derive from that?

It should not be forgotten that it is the SME's which provide the greatest engine for growth in Hong Kong, and are responsible for the employment of over a million of workers. Some of these firms have retrenched until they can go no further. What they need now is encouragement and support, not further financial burdens.

Mr Leung began his speech by quoting the opening lines of "A Tale of Two Cities": But in the current financial climate, many people in Hong Kong will find the analogy hard to accept. There is, unfortunately, not much around at present which could suggest that there are better times going on at present to offset the bad. Certainly these are changing times, and restructuring is always painful in the first stages.

It may be that in climbing Mr Leung's mountain we have yet reached the point where we can view the whole picture. We can take some consolation from the real 2.3 per cent growth rate for 2002, and more encouragement from the 2003 forecast of 3 per cent. That aside, we must trust that tax increases do not adversely affect investment, consumer spending or economic growth, and that the stimulus package in the budget is soon effective in increasing employment and paving the way a return to prosperity and an end to the economic anxiety which has dogged us since financial crisis crippled the whole region.

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