The economy is in a healthy state and the growth will reach 5 percent this year, Financial Secretary Henry Tang told the Legislative Council yesterday.

He was speaking at the start of consultations about next year's budget. Tang also said inflation is expected to be mild at about 2 percent compared with the robust economic growth over the past two years.

Addressing the LegCo Panel on Financial Affairs on the background of the 2007-08 Budget, Tang said economic growth in the first six months was 6.6 percent, indicating the 11th consecutive quarter in which the GDP growth exceeded the trend growth of 3.9 percent over the past 10 years.

"It is a good thing to have a mild growth like this," he told the panel. "For if a mature economy like Hong Kong is growing fast continuously, it will become subject to the pressure of inflation and so it will be healthier if economic growth is close to the trend growth of 4 percent," Tang said.

Responding to a legislator's question on if Tang would work out a budget for a shorter period, since his term would expire in June 2007, Tang said he would compile a 12-month budget for 2007-08, with a medium range forecast for the four subsequent years.

"I cannot come up with a budget that is good for three months only, for it makes no sense for the new-term government which will be formed on July 1, 2007 to present another budget to (LegCo) for approval.

"But in view of the changing term, we will leave as much room as possible for the next government to manouvre with regard to financial policy considerations by not making a lot of policy changes at this time," the financial secretary explained.

On the government's financial position, Tang said the level of fiscal reserves was expected to top HK$316.3 billion by the end of March 2007 (equivalent to 15 months of government spending) and further rise to HK$401.5 billion by the end of March 2011 (equivalent to 17 months of government spending).

In view of the improving financial situation, Wong Kwok-hing from the Hong Kong Federation of Trade Unions expressed hope that the government would offer more help to the needy people.

Wong also said the fact that the number of taxpayers has been decreasing indicates a wealth gap. He stressed that it is not that people do not want to pay tax but only their income is so low for taxation purpose.

He also asked the government to speed up infrastructure projects in order to create more jobs and to help the small & medium enterprises to lessen their burden on rents.

The Civic Party's Mandy Tam, who also represents the accounting constituency, asked Tang to devise an indicator of fiscal reserves, and once the reserves reach a certain safety level, the government should spend the "surplus" to return wealth to the people.

Public discussion time for certain infrastructure projects is longer than expected, Tang replied. Take the Kai Tak development for example, the planning work was relaunched in light of the Court of Final Appeal's ruling on reclamation.

He also said it would be inappropriate for the government to interfere with market rents because the consequence could be very serious.

As to what level of fiscal reserves would be suitable, he said he would need to listen to more views before making a decision.

(China Daily HK Edition November 7, 2006)