This was my first Budget and I felt it important to spell out the principles behind my fiscal deliberations. First, our fiscal policies should demonstrate the Government's commitment to society. Second, our fiscal policies should be sustainable. Third, our fiscal policies should be pragmatic.

We have concentrated on four areas: one, promoting long-term economic and social development as an investment for the next generation; two, supporting disadvantaged groups to improve their living standards; three, leaving wealth with the people to share the fruits of economic development; and, four, providing for future challenges.

The Budget is as much about meeting current needs, as it is about shaping the future of Hong Kong.

One of my major goals is to ensure our policies support economic growth. With growth, comes increased revenue and higher living standards. Increased revenue gives us more flexibility to pay for some new things or invest in projects that will help spur growth in the future.

The principle of commitment to society is about spending priorities that will help people to help themselves. That is why we will spend a lot of money on education and retraining, providing people with the knowledge to move up onto the next rung of the ladder of life.

The principle of pragmatism is about keeping the size of the public sector small so that the market has maximum room to grow and flourish. It's also about facing up to problems such as our narrow tax base, and the long-term fiscal well-being of our health care system. 

Sustained growth

The principle of sustainability is about setting spending priorities that can help sustain growth. This covers a multitude of areas. 

The $18 billion we are committing to fund research and development for 2008-09 will help develop the knowledge-based industries that Hong Kong's depends upon. It will help attract the best research talent from the Mainland and abroad, further underpinning our ambition to develop as a regional education and innovation hub.

The scrapping of duties on wine and beer will create new business opportunities when consumers across Asia are enjoying higher living standards. People in the trade expect that by removing these duties and the associated compliance costs, the volume of local wine trading business could increase by as much as $4 billion.

The $21.6 billion earmarked for the West Kowloon Cultural District invests in the hardware that can help the creative industries flourish, that can deepen and broaden the economic scope of these industries, and underpin Hong Kong's viability and attraction as Asia's world city.

Almost $22 billion will be spent on infrastructure development. Many of the projects are designed to enhance connectivity within Hong Kong and interconnectivity with the Pearl River Delta and beyond. About 27,000 jobs in the construction sector will be created over the next year. We plan to spend more on infrastructure in the coming years.

Pan-Pearl River Delta

At the policy level, the Government's ongoing efforts to pursue closer links within the Pan-Pearl River Delta region �V by leveraging on the benefits of CEPA as well as our own unique skills set �V helps economic growth on a number of levels.

First of all, it puts Hong Kong's expertise to good use within our nation. The more services we provide to the Mainland, the more jobs and wealth we can create for Hong Kong companies.

Secondly, it provides Mainland companies with a platform to explore international markets. Inward investment to Hong Kong creates jobs. It also adds to Hong Kong's attraction as a regional base for large Chinese companies.

Third, it adds to Hong Kong's attractiveness as a hub for international financial and business services. They help create jobs and strengthen the foundations of our economic development. 

Alleviating inflation

While we share the fruits of our strong economic growth, we do not want to impact on the medium-term health of public finances. Many of our concessions are one-off items that benefit both taxpayers and those in the lower income groups.

The way in which we have allocated these concessions is also designed to help alleviate the effects of higher inflation. We believe that inflationary pressures are likely to persist this year as our economy continues to expand.

We do remain concerned about the impact of inflation on lower income earners. The various measures such as the waiving of rents and the electricity grant should help alleviate the burden on the lower-income families and lower the headline inflation rate to 3.4%, even though we expect the CCPI to rise 4.5% this year.

On the other hand, we must keep an eye on the evolving financial crisis that is now much more than a US sub-prime mortgage problem. While Hong Kong's economic numbers remain strong so far, we have to be prepared for the challenges that will arise, given the ongoing global economic slowdown and the continued volatilities in financial markets.

I hope the Budget will help lay the foundations for continued, broad-based and sustainable economic growth in the medium to long term. And I hope that I can count on the business community's support and input to carve out an even brighter future for all of us in Hong Kong.

Financial Secretary John Tsang delivered this speech at the Joint Business Community Luncheon on March 10.