Citigroup yesterday raised its economic growth forecast for Hong Kong this year to 2.5 per cent from 1.7 per cent following a similar move by the government but some institutions suggested bolder measures be taken to tackle the budget deficit.

The move by Citigroup came after the government revised its growth forecast to 3 per cent from 2 per cent on Wednesday.

Citigroup forecast a 5.8 per cent growth next year, citing improving consumption, increasing exports and an expected strong growth in the United States.

The government on Wednesday lifted the economic growth forecast for the next five years by half a percentage point to 3.5 per cent.

On the government's proposals for tackling the fiscal deficit - which it said would be cut to zero by 2008-09 - also announced on Wednesday, some institutions said bolder measures were necessary to meet the budgetary goal.

They suggested broadening Hong Kong's tax base to increase revenue.

"Short of broadening the tax base, we think the revenue structure could easily come under threat in the future," said Ping Chew, associate director of sovereign ratings of Standard & Poor's, at a teleconference yesterday.

The government is relying too much on the expected strong economic growth, some analysts said.

Reiterating that the introduction of a consumption tax was a reasonable and equitable approach to tackle the budget issue, Financial Secretary Henry Tang said, however, that such a tax would not be imposed unless deflation disappears.

Echoing the view that a broader tax base was necessary, Donald Hanna, head of Asia-Pacific economic & market analysis of Citigroup, said consumption tax should be levied only when a strong economic recovery appears.

Goldman Sachs said a broader tax base and a revamp of the civil service were necessary to solve Hong Kong's structural fiscal deficit.

However, since preparation and implementation of those measures would take time, the government's plan to sell some of its assets and possible issuance of bonds were appropriate to bridge the budget shortfall in the short term, said Grace Ng, associate economist for Asia-Pacific Goldman Sachs.

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