The treasury claims Hong Kong has gone from regular surpluses to chronic deficits. The government feels the treasury cannot continue with the present trend and drain its reserves to sustain the current level of spending and public services. The authorities have, therefore, appointed an Advisory Committee to mull over tax increases - partly with the aim of making more people contribute to the coffers. They reckon, correctly, that too few citizens are shouldering far too much of the fiscal burden and have identified 13 tax options. Hong Kong cannot continue making one million of its 3.4 million working people cover most of the income and profit taxes.

No responsible person can dispute the logic and the need for widening the tax net. But many do question the timing of any tax increase when the economy teeters on the brink of recession. The latest rash of grim news locally and from abroad is not only troubling to investors but also distressing to consumers. The Hong Kong unemployment rate has gone up by .1 a percentage point to 4.7% and the estimated Gross Domestic Product growth rate is expected to be lowered from the earlier forecast of 3%. The Economist Intelligence Unit thinks the GDP growth could be as low as 1% for the year.

The Hong Kong economy, being export dominated, is exposed and vulnerable. Businesses feel every knock of ill wind from outside. People react - sometimes overreact - to bleak financial reports, of which there have been a glut from the United States, Western Europe and also elsewhere in Asia. Any new tax or tax increase will sap already troubled confidence, deepen the gloom, just when more spending is required to perk up the economy.

Some who would otherwise spend may decide to bank their money. Others may spend but not in more expensive Hong Kong, rather in less costly Shenzhen. Local retailers who have been watching an outflow of consumer spending desperately need a break, rather than another blow.

Not only consumer spending but also a thriving tourist trade is essential to any recovery. Hong Kong, which once sold itself as a shoppers' paradise, has lost the edge. Others have caught on, caught up, and are primed to surge ahead of the territory which once boasted the lowest prices and the greatest varieties.

A consumption or sales tax, as the government has broached, will dampen tourist spending. For sure Hong Kong can emulate other economies in offering tax rebates or refunds for visitors. But to do so would create more paper work and also inconvenience travelers wary of more bureaucracy when they would much rather enjoy the shopping experience.

Hong Kong is also competing with other cities for investors' interest. Corporations can migrate easily in the global economy. Any new tax would discourage investors being wooed by others offering incentives that our government has refused to match. A costlier place to live and do business in will count against the territory that is already among the most expensive.

The fiscal solution for now is not another round of tax increases but genuine austerity. The supposedly prudent government last year raised its expenditure to 21% of GDP and with 60 cents of every dollar collected paying the salaries of 180,000 civil servants. Public employees even received a pay increase for 2000/2001 at a time of continued deflation. Hong Kong boasts such a well paying and under-performing civil service that senior officials are better remunerated than the President of the United States who, by the way, pays far higher income and other taxes. The public will feel aggrieved, maybe even gauged, if it is asked to trump up more taxes just to ensure the civil servants are paid some more.

The government figures that even a 3% consumption tax can generate $18 billion. But such a claim is bogus. The government accountants have to factor in the enormous administrative costs for collecting the new tax that would eat into the $18 billion bonanza. Eventually Inland Revenue will have to raise the consumption tax to justify the administrative expense and extend it to other services ranging from housing, education, and healthcare as other governments have done.

The government, besides trying thrift for a change, should consider using proceeds from its $400 billion in reserves to cushion the spending pain and wait for the economy to rebound. A consumption tax maybe for the future but it is certainly not for now.

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