Last week I delivered my second - and last - Policy Address in this term of office. I pledged to put people first with a proactive and pragmatic approach to our work.

As you'd expect, economic development is a key element. Helping our economy grow and prosper is the best way to lift living standards for our community.

But, there are other things we can and must do. We need to ensure that Hong Kong remains a dynamic, vibrant and liveable city with its own distinct culture and place in the world. That is why I also decided to focus on ways to make Hong Kong a better city in which to live and work.

Improving air quality is obviously a top priority. There is no doubt that we deserve a better environment for the sake of our own physical health, as well as that of our economy.

The Action Blue Sky Campaign we recently launched has been well received by the public. If we all join hands to conserve energy then we are all doing our bit to make Hong Kong a cleaner city.

Within the government, we have an on-going drive to conserve energy through improved housekeeping - which can be as simple as making sure all the lights are switched off when not needed, or keeping the air con dialled to 25.5 degrees.

We are also replacing less-energy-efficient equipment. All these small steps by individuals and the Government can add up to substantial energy savings.

Incentives will help cut emissions

We're also going to do more to reduce vehicle emissions. People buying low-emission, fuel-efficient cars will be eligible for a 30% rebate on first registration tax to be capped at $50,000. And we have also decided to provide a financial incentive to the owners of 74,000 older diesel commercial vehicles so they can replace them with models meeting the latest and most stringent emission standards.

These initiatives will cost us more than $3.2 billion but we can afford them, and they are worth it.

One thing that I have to stress is that there is no quick fix to stop air pollution. This is a long-term undertaking. The reality is that we will not see major improvements for a few more years yet. But with all the small steps we are taking we will see incremental improvements over the next few years.

It's also important for people to know that we have a proactive strategy, and clearly defined goals, to reduce major pollutants by 2010, that we are working closely with our partners across the boundary in Guangdong to clean up the air, and that we will work relentlessly to implement our plan, and achieve our emission reduction targets. This is something we have to do.

Apart from improving the environment, I also introduced some new policies to enliven our arts and cultural scene, and to spur the development of creative industries. If we want to develop as a cosmopolitan world city, then we need to make sure we have a deeply-entrenched, vibrant and self-sustaining arts and culture scene. It's pretty good at the moment but we can make it even better.

One thing we will do is foster partnerships between performing arts companies and particular venues. This will help theatres and performing groups develop their own style and market niche. This in turn will help them attract sponsors, developing business plans and improve the quality and variety of their work.

This type of scheme will also encourage greater community involvement in arts development as well as broaden the audience base. And because of our East meets West heritage, our arts scene is perfectly placed to develop as a unique resource and attraction, as well as a window on the creativity and ingenuity of our people.

The film industry is another example of how tiny Hong Kong can have a big impact on the world. Every year, Hong Kong Film Festivals around the world showcase the latest movies produced by our talented film industry professionals.

Our movies speak a universal language because there is such a great concentration of human spirit and experience distilled into our city. Chinese communities around the world have grown up on a steady diet of Hong Kong film and TV shows.

Our directors have left an indelible mark in Hollywood. Our musicians have written Oscar-winning scores. And our special effects artisans are amongst the best and most technically proficient in the world.

So, it is time we rationalise and strengthen the institutional support for our film industry. We will set up a Film Development Council to support our film makers; and we will also study how to provide more and better ways to budding and small to medium size film makers. We want to ensure that 'Made in Hong Kong' movies can continue to touch the hearts of audiences at home and abroad.

We portray ourselves as Asia's world city, and I certainly believe that we are. But I am sure that by improving the living environment and helping our arts and culture scene to thrive we can become an even more cosmopolitan, creative and cool city than we are today.

Chief Executive Donald Tsang broadcast this "Letter to Hong Kong" on this 2006-07 Policy Address on RTHK radio.