Legislators urged the government to make proper use of the envisaged lucrative surplus and cut taxes while announcing the 2007-08 Budget next month.

They made the appeal at a Legislative Council (LegCo) motion debate yesterday on the ways to enhance the efficiency of public finance management.

Replying to the motion, the government said it had listened to the voices from all quarters of the community and the aspirations of the legislators.

In moving the original motion, accounting constituency legislator Mandy Tam asked the government to not only maintain fiscal prudence but also be generous.

Given the government's lucrative reserves, she said the government should devise a proper safety mechanism and return the surplus to the people. "But we do not agree to tax reduction because this cannot benefit all citizens," she said. "Instead, we suggest bigger expenditure on education, healthcare, and initiatives that would enhance Hong Kong's competitive edge."

The Democratic Party's Sin Chung-kai noted that the government increased the salaries and profits tax rates in 2002-03 to ease the staggering budget deficit. But since then, economy has rebounded and the fiscal position has greatly improved. He estimated a surplus of about HK$30 billion for the current fiscal year.

"We suggest the government to keep a reserves level equivalent to no more than 12 months' government spending," he said. "At the same time, the tax allowances, tax bands and marginal tax rates related to salaries tax should be reverted to the 2002-03 level to ease the burden of taxpayers."

Noting the current healthy fiscal position, the Liberal Party's Jeffrey Lam called for tax reduction for the citizens, the middle class and small and medium-sized enterprises since they had also shared the difficult times with the government in 2003.

The government, he said, does not need to worry about the loss of revenue resulting from tax reduction, because it can gain more revenue by changing the ratio of sharing of returns from the Exchange Fund investment portfolios.

Ronnie Tong, from the Civic Party, and Wong Kwok-hing, from the Hong Kong Federation of Trade Unions, asked the government to invigorate community economy in the Tung Chung and Tin Shui Wai new towns in order to provide job opportunities for the local residents. They criticized the government for not offering transportation allowances for those looking for jobs in the urban areas.

Albert Chan, from the League of Social Democrats, however, opposed tax reduction because it would not benefit the better-off of the people but would further widen the wealth gap. He, however, urged the government to improve the livelihood of the under-privileged people by creating job opportunities, medical allowances and retirement benefits.

Secretary for Financial Services and the Treasury Frederick Ma said Hong Kong had gone through a very difficult financial situation in the past years. At the end of March 1998, the reserves level stood at HK$457 billion but it had shrunk by 40 percent while the government suffered from over HK$60 billion deficit for two consecutive years during the difficult period.

"Given our externally-oriented economy that is vulnerable to uncertainties and the narrow tax base that gives rise to income fluctuations, we need to manage our finance prudently," said Ma. "As a responsible government, we cannot look at today's economic situation and the amount of money in our pocket alone when we manage public finance. We need to keep the fiscal prudence, use public money properly and shall not lash out money rashly.

"The government is committed to promoting economic development, enhancing the competitive edge and improving the people's livelihood. The Financial Secretary has heard about tax reduction and he will seriously consider all the views and prepare the next budget paper on basis of the key principle of stable public finance."

Finally, it was Mandy Tam's motion as amended by Jeffrey Lam that was carried.