A consumption or sales tax proposal is not new. The government floated the idea in the late 1980s at a time of huge surpluses. The financial secretary of the day quickly withdrew the suggestion because it looked greedy in the face of a bursting treasury. But now the issue has taken on urgency because of another fiscal deficit and a new financial secretary eager to make his mark. The Liberal Party agrees the present tax system is too narrow, unfair, and distorted. 100,000 people out of 3.4 million that work pay most of the income and profit taxes without getting many tangible returns. They put up with this sort of socialism because that is the price for stability.

Having a consumption tax might be a good move if that means making seven million citizens give and not simply take from the coffers. Hong Kong also must have a balanced budget as prescribed by the Basic Law.

But introducing a new tax can only be done during boom times, which these are not. Government is not to provide the latest GDP growth forecast until the end of the month, but already bank economists have on their own estimated that the annual growth could be as low as 1.8%.

Hong Kong's most important export market, the United States, has all but gone into recession. Corporate profits have vanished and companies are sacking workers by the tens of thousands. American economists, who once predicted a recovery in the latter half of this year, have postponed that rebound to sometime in the middle of 2002.

Even the mainland market is not growing as it did in recent years. The story is the same in South Korea and Southeast Asia. Japan has been in a slump for the past decade and the restructuring promised by its radical Prime Minister could cost many more layoffs, plant closures and cutbacks.

Hong Kong is unlikely to weather the global economic storm in fine shape. True, the low interest rate may help the property market by easing mortgage payments. But then Hong Kong will feel the global economic pain eventually as the impact from difficulties in its main markets takes time to hit home.

Between late 1998 and 2000 our economy rebounded from the Asian financial crisis thanks to the booming high tech and export sectors. But now high tech is reeling from the NASDAQ woes and the Internet and telecommunication stock collapse. Importers in the US, Europe Union and elsewhere in Asia are canceling or scaling back orders.

Our local retail businesses will suffer as consumers lose confidence and as more shoppers go across the border for bargains. If the government were to impose a consumption tax now, it would hurt local stores by compelling more people to spend less locally and spend more in Shenzhen.

Early in the year the administration just introduced the Mandatory Provident Fund. This alone has posed a major burden on employers and employees who have to allocate 10% of salaries to meet their new obligations. The money invested in the MPF scheme is money out of immediate, retail circulation. Any new tax is not acceptable until the economy has digested the effects of MPF.

The government in its consultation paper says any consumption tax would be modest. This is what all governments say to lower public resistance to an unpopular program. But the taxman also knows that eventually he will have to raise a low tax to justify the administrative costs for its collection. The government concedes that a 3% consumption tax would yield only $18 billion without whispering a word on the administrative costs. There will be a temptation later to increase that net intake.

I will cite examples of other governments raising consumption taxes in increments. The British, to start, introduced a reasonable sales tax of 5% that has since risen to 17.5%. The Canadians in the Province of British Columbia pay a hefty combination of provincial sales tax and value added tax that together increase a purchase by 13%. The French have to pay out a sales tax of 20%. Americans, Australians and Europeans have experienced the same. Such a tax is like a drug to which any treasury can get hooked and find so hard to wean.

There is no doubt that when a consumption tax is introduced it will be the start and not the end of a cycle of tax increases. The government will surely rationalize the extra tax on familiar arguments of how healthcare, welfare, education, housing, and sundry services may suffer if it does not raise the levy.

The Liberal Party opposes such a tax at a time of weak economics. We urge the government to defer adding taxes and, for that matter, fees and charges until the economy has become robust enough to take the blows.

Hong Kong once thrived as a tourist destination because of its reputation as a shopper's paradise. A whole strip of shops along Nathan Road caters practically to no one else but visitors. The tourist trade is our second largest source of foreign exchange.

But over the past decade or so a combination of inflation, a Hong Kong currency pegged to the US dollar, high wages and labor benefits has eroded that advantage. Today many tourists can get better shopping bargains on the mainland, Singapore and, it is hard to believe, Japan.

Hong Kong is not only competing to lure tourists but also competing to keep corporations from moving to less costly rival cities, all offering tax rebates and other incentives. A consumption tax will raise the cost of living and may chase out those job-producing companies, which, frankly, have other options.

Before the government contemplates a consumption tax, it should first consider a cut in expenditure -- especially civil service pay and perks. The administration has never tired of touting its fiscal prudence. But words are of course not matched by deeds when officials deal with themselves. About 60 cents of every dollar the government spends go towards paying the salaries of the 183,000 civil servants and recently, by the stroke of a pen, $3.8 billion was spent to increase civil service salaries.

A few months ago the government finalized a program for early retirement to prune the bloated civil service and achieve higher efficiency. This was wonderful in theory but the catch was that the costs for terminating employment were so high and the benefits to the retirees were so generous that many more civil servants left and the Legislative Council Finance Committee was asked to authorize an additional payment.

The government has to practice more than it preaches cost cutting. We have to live within our means and so why not civil servants? Our government should be in better fiscal shape than it is today. For example, the government of Singapore has to pay 20% of its expenditure on defense and diplomatic missions while ours does not because our Central Government bears full cost.

Only when the government has proven itself to be frugal and the economy has strengthened can it morally convince the public to support a consumption tax. Until then the Liberal Party joins others against the consumption tax whose time is not now.

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