These shares have provided a massive windfall income for our Government to offset the short-term impact of recent deficits and, thus, give the still struggling economy, particularly small-and-medium-sized businesses, a much-needed tax break. However, the Government's structural fiscal imbalance is still far from being resolved.

From what I understand of the Government's accounting, the Hong Kong Monetary Authority (HKMA) manages the Exchange Fund, which includes our fiscal reserves and various funds, independent of the Government. As with other central banks, the HKMA each year distributes dividends which are accounted for in the Budget as the Government's investment income. The investment income for 1999/2000 surged from a forecast figure of HK$22.2 billion to a revised estimated figure of HK$44 billion.

It is worth noting that the Exchange Fund's year-end closes on 31 December and that the investment income is based on nine months' actual figures (from 1 April 1999 to 31 December 1999) and three month's projected figures (1 January 2000 to 31 March 2000).

To update the investment income figure for the revised Budget, the Government will have to project a value for its investment portfolio as at 31 March 2000, which will include its Hong Kong-quoted shares. The Exchange Fund's earnings, on which the distribution is based, comprise both the realised gains from the sale of the TraHK Fund and the unrealised gains from the market valuation of the shares still held by the Exchange Fund Investment Ltd (EFIL) and the Exchange Fund's own overseas investment.

A rapid reversal or slowdown of the current buoyant stock market would seriously undermine the HKMA'a ability to make similar distributions in the future. This year's exceptionally huge HK$44 Billion investment income is therefore clearly not a stable source of recurrent income.

In terms of the Budget, this HK$44 billion investment income represents 19.2 per cent of the Government's entire HK$229 billion revenue and is much bigger than either the HK$37 billion expected profits tax yield or the HK$23.8 billion expected salaries tax yield for the same fiscal year.

If the Government had not received this unexpected windfall of HK$21.8 billion (HK$44 billion less HK$22.2 billion) from extra investment income, our deficit would have been HK$23.4 billion (HK$21.8 billion plus HK$1.6 billion revised deficit) instead. There is absolutely no way the Government could have made up such a huge deficit by merely tinkling the existing tax bases.

Given that I consider myself a responsible politician, I have not played the populist tune of 'less tax, more public expenditure'. Instead, I have lead the call for listing the MTRC, and have helped to launch the successful TraHK Fund as a director EFIL. I have also strongly urged the Government to reform the civil service.

Notwithstanding, I have been involved in the debate on the status of our public finances and the various options open to our Government, including the very controversial consumption taxes.

I have urged the Financial Secretary to tackle all these problems gradually, pointing out the necessary of balancing the Government's books in the medium-to-long-term in the most acceptable way to the community.

When asked for my comments on the recent Budget, I responded by saying that it was better than expected. I agree with the 'gentle hand on the tiller' approach, but feel we still need to tackle difficult issues such as the necessity for a comprehensive tax review and civil services reforms. I applaud the Financial Secretary's clear economic blueprint and I thoroughly support him in the battle to downsize the civil service.

I spoke about my desire to see Hong Kong crowned as the financial/IT centre of China. For this to occur, the Government will have to do much more to break down two places. This is especially true in the IT sector as without free entry into China, our own market is actually quite limited in relation to the huge investment currently being poured into Hong Kong.

I also mentioned the Government departments, for example, the Post Office, which, despite their great commercial potential, need to evolve in response the changing electronic age.

Civil service reforms should include a review of salaries and conditions. Any delay in this review means that public services are going to remain costly and uncompetitive.

However, the private sector will always be able to take advantage of lower staff costs and more flexibility in IT investment, meaning that the private sector will be able to provide the same services as the public sector, but cheaper and better. If that is the case, the call for contracting out services and freezing fees in the public sector will not stop.

Finally, I spoke about supporting our basic free-market principles of allowing the private sector to take the lead in developing the economy and the need for a comprehensive tax review.

As usually, my full speech will be supplied in due course and your views are welcome.