despite domestic inflation. Let us remind ourselves of the alternative. We could seek to suppress inflation by a deliberate deflation. The result would be substantial unemployment, a sharp rise in the number of bankruptcies and a drastic fall in investment. The economic and social costs of such a recession are, in my view, unacceptable.
33. Even though efforts to relieve the basic causes of inflation will not produce immediate results, there are certain undesirable aspects of inflation which we must tackle. The first is the danger that as the community's living standards rise, the vulnerable, the disabled, the unskilled and the elderly will be left behind, hard hit by rising prices. To maintain the real living standards of these groups, the Government will continue to ensure that social security benefits are revised in line with the cost of living. No one will be deprived of education or medical care because of a lack of means. Prosperity brings with it an obligation for the community to protect those most at risk, especially in a period of inflation. The Government accepts this responsibility.
34. Secondly, where prices are deliberately inflated through market rigging, it is essential that we take steps to protect the public. We acted promptly last year when the prices of new flats were being driven sharply upwards by speculators. With the support of this Council, I intend to see that Hong Kong continues to enjoy markets where, as far as possible, competition ensures that the public gets a fair deal.
BUDGET STRATEGY
35. It will be clear from what I have said about Hong Kong's economic philosophy that neither I nor my predecessors have viewed the Budget as, in any significant sense, a tool for directing or managing the economy. Could the Government have engineered the transition to a service economy which promises so much for future prosperity? Clearly not. Free enterprise is the basis of economic growth, and economic decisions are best left to markets.
36.
In preparing my budget proposals, I have focussed, therefore, on the management of public finances rather than attempting to manipulate macroeconomic variables. In any event, the size of the public sector is relatively small, and Hong Kong Budgets have tended to be basically neutral in macroeconomic terms, as is this one.
37.
38.
In setting about financial management, I have been determined:
to ensure that public spending remains in line with economic growth.
to raise sufficient revenue to cover our spending commitments, and to ensure that at least half the costs of our capital expenditure is financed by recurrent revenue.
to maintain reserves at the level I judge adequate both to meet known commitments and to provide a cushion against future uncertainties.
This last guideline takes into account the need under the Memorandum of Understanding on the Airport Core Programme both to complete the Airport Core Projects
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