Delivering his policy address at the Legislative Council, Tung said the SAR government must adopt a three-pronged approach - boosting economic growth, cutting public expenditure, and raising revenue, to eliminate the fiscal deficit.

He said the SAR government is targeted to reduce the government's projected spending of 220 billion HK dollars (28.2 billion US dollars) in the operating accounts in 2006-2007 by 20 billion HK dollars (2.6 billion dollars).

"We also intend to introduce appropriate tax increases and adjust government fees and charges upwards to help eliminate the fiscal deficit," he said.

Tung said he is pleased that many people in the community have made clear their willingness to accept measures to raise revenue, including reasonable tax and fee increases.

"Our moves to tackle the deficit problem will expedite the return to a small, lean government, which is more energetic, more sharply focused on its priorities, more efficient and better able to make optimum use of resources," he said.

To achieve the goal of reducing expenditure, the SAR government plans to set an overall target of cutting the civil service establishment by 10 percent by 2006-2007 through natural wastage and normal retirement, Tung said, adding that that means the number of civil servants will drop to about 160,000.

From April 1 this year, the government will freeze civil service recruitment across the board and will launch the second phase of the Voluntary Retirement Scheme, Tung said.

Tung said the 14 principal officials, the director of the Chief Executive's Office, the head of the Central Policy Unit and he himself will cut their pay by 10 percent with effect from April 1,2003, to demonstrate our determination to share the hard times with the community.

"I am convinced that by joining hands with the community, the government can reduce its expenditure and contribute effectively to solving the fiscal deficit problem," he said.

(Xinhua News Agency January 9, 2003)