THE Financial Secretary, Mr Hamish Macleod, was criticised by legislators for passively capitulating to the persistently high rate of inflation during the first day of the annual Budget debate yesterday. Banker legislator Mr David Li Kwok-po and Co-operative Resources Centre (CRC) legislator Mr Ronald Arculli both urged altering the existing Hongkong dollar peg with the US dollar to push down the high-running rate. Mr Arculli accused Mr Macleod of having waved the white flag in the battle to combat inflation, despite the fact that the latest figure had dipped from the earlier double-digit level to the latest 8.6 per cent. ''It is very worrying that the Government seems to be throwing its arms up in the air virtually giving up the fight,'' he said. He suggested the Government re-peg the US/Hongkong dollar rate from the present $7.8 to $7. Mr Li also attributed the dollar peg as a major cause for the unyielding rate. ''If Hongkong continues to suffer inflation, thanks in part to the linked rate, perhaps the Government could be made more accountable, and more responsive, with the creation of a different peg,'' he said. He proposed that the Financial Secretary's compensation be inversely linked to inflation. ''If Hongkong's inflation rate increases, the Financial Secretary's compensation will fall at the same rate. He would also be penalised if inflation remains high.'' ''But if inflation falls, the Financial Secretary would receive a well earned increase, and Hongkong's business community would breathe a sigh of relief.'' Other legislators shared discontent over what they saw as Mr Macleod's dodging of the problem. Most of them expressed worries that the current No 1 public enemy would continue to disturb Hongkong's economy. The General Chamber of Commerce's representative Mr Jimmy McGregor said the Government had not done enough to tackle the real problem of inflation. Pro-China legislator Mr Philip Wong Yu-hong and Heung Yee Kuk chairman Mr Lau Wong-fat both were convinced a deficit budget would further fuel inflation. Mr Wong said: ''The Financial Secretary is helpless in tackling inflation. And now he has designed a deficit budget with huge spending by all government departments. This will inevitably fuel inflation, causing it to run out of control as 1997 nears.'' CRC legislator Mr Stephen Cheong Kam-chuen said although the inflation rate would very likely climb to another peak in the coming years, the large number of infrastructural projects, the increase of public expenditure, China's fast economic growth, Hongkong's low interest and its near full employment were bound to fuel inflation in the next few years. But he warned the Government not to remove the dollar peg because such a move would be detrimental to Hongkong's long term prosperity and stability. Meeting Point legislator Dr Leong Che-hung also urged the Government to take a more pro-active approach against inflation. Another CRC legislator Mr Peter Wong Hong-yuen said what Hongkong needed was sustainable economic well-being and a slow down of inflation. To combat inflation, the Government had to relax restrictions selectively on labour importation, he said. But economist Mr Vincent Cheng Hoi-chuen was more pessimistic about whether inflation could be curbed. He considered inflation an inevitable consequence of economic growth. ''We cannot keep the economy running at full capacity without accepting a higher rate of inflation.'' But he disagreed that the present Budget would give additional massive momentum to inflation.