Hong Kong should make university tuition tax deductible to attract foreign students and keep hold of those who graduate in the city, accounting giant Ernst & Young (EY) has suggested.

With Financial Secretary Paul Chan set to announce his latest budget this month, the firm is also calling for cuts in salaries and profits tax, but is warning against another round of consumer vouchers.

Robin Choi, a People Advisory Services partner at EY, said on Thursday that tax breaks for new graduates would help build a sustainable supply of labour.

"In particular, for foreign students who study in Hong Kong and would like to spend their career... at least the first five years here, spend two years here and the tax deduction will start in the third year to the fifth year," he said.

Choi added that such a move would also help keep local students in the territory after they graduate.

Meanwhile, Financial Services Tax Leader at the firm, Paul Ho, said giving the public more spending vouchers would not be a smart move.

"From a prudent management perspective, we want to make sure that Hong Kong has enough [of a financial] buffer to build a long-term and sustainable economy, rather than looking at another short-term measure," he said.

EY forecasts that the government will record a deficit of HK$135 billion in the next financial year. It says the city's fiscal reserves are likely to drop to around HK$822.1 billion, enough for one year's expenditure.