Hong Kong's economic growth this year is expected to be 6.5 per cent, thanks to domestic consumption and exports and the robust 6.8 per cent increase in the third quarter, Financial Secretary Henry Tang said yesterday.

Such a growth rate is very high for a developed economy like Hong Kong after several years of high growth, Tang said, because a consistent rate of high growth creates the pressure of inflation.

The appreciation of the yuan and the weak US dollar, he said, would push up import prices because the Hong Kong dollar is pegged to the greenback. But even then Hong Kong will enjoy its competitive in the export market.

Briefing the Legislative Council panel on financial affairs on Hong Kong's overall financial situation, he said the estimated 6.5 per cent growth for 2006 was quite high when compared to the normal trend of 4 per cent and notwithstanding the 8.6 per cent and 7.3 per cent rise in 2004 and 2005, respectively.

"So I think it's a healthy phenomenon for the economy to return to normal growth. Otherwise, consistent growth for a long time would bring about inflation, making the grassroots people the first ones to bear the brunt," he said in reply to Liberal Party Chairman James Tien, who had asked him to evaluate the impact of the sluggish US dollar on Hong Kong's economy.

Responding to a question of accounting constituency legislator Mandy Tamon on the appreciation of the yuan, Tang said it would put pressure on imports and inflation.

"But governed by the fact that Hong Kong's currency is pegged to US dollar, and because of other monetary measures, the yuan is rising very slowly and within our prediction," he said.

Aware of Hong Kong's healthy fiscal position, several lawmakers urged Tang to offer greater help to the poor and to shorten the wealth gap between the rich and the poor.

Panel member Chan Yuen-han, of the Hong Kong Federation of Trade Unions, said workers' incomes were falling despite an increase in the employment rate because their wages were very low. "Their incomes are even lower than social security payments," she said. "The government needs to (enact a law on) minimum wage and standard working hours to protect the workers."

The Frontier's Emily Lau, too, raised the wealth disparity issue, saying it was a very serious problem. The number of households earning less than HK$4,000 a month had risen to 187,000, she said.

She suggested the government increase education expenditure to have more undergraduates. Poverty can be alleviated through education and retraining.

Tang replied that lifting people out of poverty through economic recovery and by helping them to find jobs would prove to be a more useful way.

Relating the question to the need to broaden the tax base, he said the government could not spend freely without a strong financial back-up. And that couldn't be done because it was the legislators that opposed the introduction of a goods and services tax as a step towards broadening Hong Kong's narrow tax base.