Hong Kong's leader Tung Chee-hwa promises to solve the budget deficit, streamline government and create business opportunities through greater economic integration with southern China.
Hong Kong Chief Executive Tung Chee-Hwa warned the city's residents that the economy may get worse before it gets better.
Speaking before the Legislative Council on Wednesday, Mr. Tung said that salaries are likely to continue their decline, the gap between rich and poor will widen further and deflation will continue to drive prices lower.
However, Mr. Tung went on to suggest that Hong Kong has a strong path to economic recovery, as trade with China and the rest of the world continues to expand.
He promised greater cooperation with the mainland's Pearl River Delta region, where Hong Kong companies are already heavily invested. Transport, cultural and education links may be strengthened.
In his annual policy speech, Mr. Tung said tackling Hong Kong's ballooning budget deficit is his priority this year. While he blamed much of the shortfall of government revenue on the economic downturn, he said his administration will move quickly to increase taxes and cut government spending. "I have to say a budget deficit in excess of five percent of GDP is a very serious matter," he said. "We have to increase taxes but we will do it such a way it will be consistent with our simple tax structure and low tax base. We need to reduce expenditure and I have said the goal is that we will be careful that it will not create too much of a problem from a deflation point of view."
He added that he and 60 top civil servants will take a salary cut of 10 percent. He also said the civil service ranks would be reduced through attrition over the next few years.
Observers say most of Hong Kong's civil servants are paid more than private sector workers, and that salaries eat up around 80 percent of the government's recurring spending each year.
While falling short of granting tax incentives for various industries Mr. Tung promised continued government investment in the infrastructure necessary for shipping and transportation.
