XN000022-1997-01-21 — Page 5

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"This article enjoins us to continue to maintain a small government and live within our means."

But, Mr Kwong said, that was not the end of the story.

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"Article 108 of the Basic Law states that "The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.'

"Not only does this article require us to maintain our low (simple and predictable) taxation system, it makes it clear that Hong Kong will have autonomy in the decision of its tax policies from the Chinese Central Government," he added.

Turning to the philosophy of Hong Kong's fiscal policies, Mr Kwong said insofar as the role of the Government is concerned, "we are great believers in the adage that small is beautiful".

"We firmly believe that it is the private sector which generates the wealth on which all else depends. We have no wish to see a public sector which grows disproportionately and which competes with the private sector for resources. The implications in terms of higher taxation, reduced competitiveness and distorted investment decisions are simply unacceptable to us," he said.

"The consequences of this philosophy is that as a share of the economy, measured by GDP, we have kept the public sector at below 20 percent."

The Secretary for Treasury said a corollary of the "small government" philosophy was that "we live within our means".

"We spend only what we can afford (both economically and fiscally). In the past ten years, we have seen only one year in which there has been a budget deficit. That was in 1995-96 because of our substantial investment in the new airport and related infrastructure, an investment which will bring us enormous long term dividends," he said.

"Yet, despite the deficit in 1995-96, we have added over HK$120 billion to our reserves in the last ten years. And we are one of the few governments in the world to have no outstanding debt."

Mr Kwong went on to explain how the Government puts this philosophy into practice.