The two Corporations are required by their governing Ordinances to operate in accordance with prudent commercial principles. To enable them to do so they are given autonomy in determining fares. The Corporations have to look at their revenues against operating costs and capital investments for service improvements before deciding whether and by how much their fares would need to be adjusted. Public acceptability of any such adjustments would also be taken into account.
The Corporations need to adjust their fares to ensure that their revenue is maintained in real terms. This enables the railway systems to grow to meet future needs. Artificially suppressing necessary fare adjustments over a period may result in the degeneration of the systems to the dissatisfaction of commuters. The Corporations would obviously have to consider carefully the long term financial implications of not adjusting their fares in any one year.
But what is most crucial is that we must leave that decision to the Corporations. Their autonomy in fare policy is vital to their commercial viability, including the ability to borrow at favourable rates to finance service improvements and expansion. The Secretary for Transport has explained at great length the philosophy behind preserving the Railway Corporations' fare autonomy at the motion debates initiated by Hon Lau Chin-shek on 12 January and 22 June 1994. The explanations are still valid. I am please to notice support from some Members for this philosophy. The Administration does not find it necessary or appropriate, even as a temporary measure, to interfere with the fare autonomy of the two Corporations. Just when the MTRC and PAA are about to borrow $23 billion on the world's financial markets to complete the Airport Railway and the new Airport, what kind of message are we trying to send with a motion urging the Government to intervene and force the two Railway Corporations to act contrary to the prudent commercial principles which by law they must follow.
Rates
I do not propose to dwell overlong on the issue of rates. To freeze rates retrospectively from 1995-96 would cost us $1.2 billion. If the moratorium were to continue in 1996-97, the total revenue foregone would amount to $3 billion. This would seriously undermine rates as a fair and stable source of revenue. The effect on casing inflation would not be substantial as the increase in rates in 1995-96 will add no more than 0.1% to CPI(A). Moreover, let me remind Members that those living in public rental housing, who account for about 50% of our population, will not be directly affected by the rates increase. The immediate effect of the increase will be absorbed by the Housing Authority until rents come up for revision. There are thus sufficient relief measures to moderate the impact of rates increases on the less well off. Its effect on inflation is not significant. It would result in serious revenue foregone. It is neither necessary nor justified.