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8. As regards (i) the 2% at present regarded as the proportion of the rates applicable to water might reasonably be regarded as a proper charge for general supply. It is true that this 2% yields more than the actual cost of the munal supplies as defined above and that it has been connected with the free allowances so that when those allowances are abolished those consumers (principally office blocks and well-to-do private residents) who have in the past got all their water within their free allowances and paid nothing for excess consumption may not like having to pay in future at the standard rate for what they consume as well as continuing to pay the 2 per cent.
But there are many diverse considerations on the other side, i.e. :
(1) Provision has to be made in the water accounts for the military contribu- tion, but this might well be regarded as a charge to be met by the general community, not by water users, so that the Water Department's share of the military contribution may fairly be collected as part of the rate, not by addition to the standard charges for water consumed.
(2) Rates in Hong Kong are decidedly low, at a total of 17% including the
2% for water.
(3) If the 2% is reduced the general standard rate for water must be increased to make up the loss of revenue; e.g., a standard charge of 30 cents would suffice if the 2% is maintained but at least 35 cents would have to be charged if the rates were reduced to 1%. With many qualifications, it is broadly true that such a transfer of charge would mean shifting the burden from the comparatively well-to-do to the poor. I regard such a shift of the burden as most undesirable because I greatly fear that the poor tenant will be found on balance to pay more as a result of the proposed changes in the collection of water charges, while the Hong Kong taxation system already taxes the poor more heavily in proportion to income than the wealthy.
(4) A fairly large fixed charge will help to stabilize the finances of the Water Department. Consumption of water in Hong Kong depends not so much on the demand as on the supply which nature affords in any year and a restriction of supply as the result of drought might embarrass the finances of the Department if the whole of its revenue varied directly with con- sumption. The receipts from the 2% rate would afford a solid basis of income.
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I therefore recommend continuing the 2% charge and adopting a standard charge of 30 cents per thousand gallons.
9. As regards. Head (iii) the extra costs of pumping to the Peak and Hill districts are 30 cents per thousand gallons and to the upper levels 15 cents. There are direct extra expenses on every gallon used in these areas. I think consumers there could justly be asked to pay these extra costs in full, but recommend that they only be asked at present to pay a portion.
10. The following scale of charges is therefore recommended. It will neces- sarily be subject to review after the new regime has been in operation for sufficient time to estimate possible results :—
(a) 2 per cent. on the assessment valuation to cover general charges.* (b) Unit charge of 30 cents per thousand gallons.
(c) Upper levels and Peak-Hill districts to pay 40 cents and 50 cents respectively
per thousand gallons.
(d) Supplies to building contractors and shipping to be charged for at $1 per
thousand gallons as at present.
(e) Meter rentals as at present.
*This might be shown on the water accounts, instead of collecting it as part of the general rates as at present..