heavily in the depression, are look- ing to Government to effect a reduc- tion is rates to the former level of 13 per cent. While it may not be possible to restore the old rate of taxation, we consider that in view of the severe depression in property to it should be Government's aim bring about some reduction at the earliest possible moment.”
Fourthly, the Financial Secretary says that if the two per cent. rates were taken off, the standard rate for water must be increased. I venture if this point, even to think that sound, has no relevancy on the ques- of whether the revenue represented by the per cent. rates should, or should not, be a burden of the land- lords.
And, lastly, the Financial Secretary says that the fixed charge of two per cent. rates will help to stabilise the finances of the Water Depart- ment. Again this has nothing to do with the point whether retention of the charge is justified, since nothing is given in return.
I come now to the figures as set out in the Financial Secretary's Memorandum.
Revenue Estimates
Dealing first with Renvue, the Financial Secretary estimates that revenue for water for 1937, on the basis of the new charges, amounts to net $2,172,927, which includes a sum of $1,498,200 for charges for consumption, the balance being made up by the two per cent. rates and by motor rents, etc., less military con- tribution at 20 per cent.
From the official answers to my questions mentioned above, it would appear that the total revenue from the Water Service is $1,617,633.43. made up of $930,900 calculated on the basis of the new charges for the period January 1 to July 31, 1938: an actual receipt of $243,841.02 for Meter and Fire Service Rentals; and $442,892.32 being the two per cent. rates. Although it was pointed out that Meter and Fire Service Rentals being payable in advance, the total figure for the whole year would not greatly exceed the figure for the seven months ($243,841.02), I cannot but feel that this is too conservative Lan estimate, for I should imagine that the number of people who commence new businesses, or take new meters for domestic supplies for a period of five months, cannot be negligible. Apart from this it would
that, based
on the seven months' figures as above stated, the revenue for the whole year will be $1,595,828.57 for water charges $243,841.02 for Meter and Fire Ser- vice Rentals, and $759,243.97 being two per cent. rates, making a total of $2,598,913.56. It will thus be seen that this total exceeds the Financial Secretary's estimate of $2,172,927 by $425.986.56.
seem
I am aware that the future revenue for water will be adversely affected by the water restrictions now in force. But the Financial Secretary obviously did not base his estimate of water revenue on the possibility" of drastic water restriction, and I am content to show that, apart from water shortage which could not have been foreseen, his estimate is on the conservative side by over $400,000.
Expenditure Justified Coming now to Expenditure, submit that actual detailed figures by way of proper balance sheets, etc. alone
can prove whether the estimates of $330,627 for staff charges, and $591,834.00 for main-
I
SOUTH CHINA MORNING POST
16th September, 1938.
3)
tenance charges, are, or are not, ex- cessive. But the proposed charge of two per cent. (for 50 years) on $15,578,000 on "expenditure from Revenue estimated up to the end of 1937" amounting to $311,560 cannot, in my submission, possibly be justified. If $311,560 is struck off from the ex- penditure side, it is obvious that the water revenue can be reduced by this amount.
No figures have been produced to. show how the alleged past capital expenditure out of Revenue of $15,- 500,000.00 is made up, and I, for one, am curious to see those figures. The Economic Commission's Report states that the Commission was informed that the capital outlay, prior to loans, was $10,000,000. If $10,000,000 does really represent the whole of the capital outlay on Waterworks from the beginning of the Colony up to the date of the Economic Commis- sion's Report, then I should be inerested to know when, and how, the extra $5,500,000 was spent.
In the figures supplied by the Water Department to the Economic Commission there was an item for "depreciation 11⁄2 per cent. on capital outlay of $10,000,000 prior to borrow- ing". Of course this charge is in essence the same as the proposed charge of two per cent. on over $15,500,000 and in connection with this charge this is what the Commis- sioners said:
It was admitted
that in point of fact (a) the works had been fully paid for out of past revenues; (b) that the annual de- preciation of $150,000 was not ear- marked or credited to a reserve fund which could
be drawn upon for renewals, but was simply paid into the general revenue of the Colony; (c) that depreciation was charged annually upon the full capital value of $10,000,000 and not upon the depreciated capital value; (d) that normal replacements were covered by maintenance charges under Public Works Recurrent; (e) that extensions and small developments were cover- ed by Public Works Extraordinary and finally; (f) that in the event of a catastrophe rendering necessary renewal of a major work the under- taking would in all probability be financed out of loans.
"In these circumstances, we cannot. agree that there is any justification for the inclusion of this item in Maintenance Charges on Waterworks. To so include it is to mix capital expenditure with revenue, which is contrary to the principles of sound accountancy. The capital outlay of $10,000,000 has already been fully paid for out of
and any major replacements which
may become necessary in the future should be dealt with as they occur prefer- ably by means of loans. In our opinion it is quite unnecessary to burden the revenue derived from water with an annual charge of $150,- 000 for depreciation."
the
revenue
I need not say more to show the injustice of the proposed charge. But it will be observed that the Commission's criticism was based on assumption that past capital expenditure had in fact been paid out of past revenue generally, and not specifically out of Water Revenue.
But I am not prepared to make any such assumption. Indeed, it may very well be that on a proper ac- count being taken, from the be- ginning to date, of water expenditure on the one hand, and of water revenue on the other, it
will be shown that revenue exceeds expendi-
75-
ture by a very large sum, and that in so far as the past capital expendi- ture was paid in the past out oi revenue, that revenue actually re- presented "profits" from the water account. In this connection I would like to refer to what I stated in this Council on October 7, 1936: "The Hon. the Director of Public Works was kind enough to supply me with certain figures in respect of the period 1920 to 1935. The figures show expenditure for main- taining Water Works on the one hand (which comprises Public Works Recurrent and Salaries attributable the to the Water Works), and, on other hand, the net revenue derived for Water (which comprises water excess charges and the "water rates" (2 out of the 17 per cent. assessment). From 1920 to 1935 the total expendi- ture for the whole period amounted to just over $7,000,000, and the total revenue came to just over $22,800,000, showing a net profit obtained by
of Government from Water
about $15,000,000.
Defeats Comprehension Admittedly the whole of the past capital expenditure has been paid for out of General Revenue, and I have attempted to show-I hope success- fully that it has in fact been paid out of Water Revenue. This being so, why the consumer should now be made to pay anything in respect of this past capital expenditure defeats my comprehension!
some
Much has been said about Military Contribution. I hope that equitable solution of this thorny question will be possible. In the meantime I would like to observe that military contribution at 20 per cent. has already been paid on the so-called past capital expenditure of just over $15,500,000, and that pay- ment by way of an annual interest! on this sum at two per cent. will of course involve an annual further further payment of military contribu- tion at 20 per cent.
In the modifications of the Fin- ancial Secretary's proposals mention- ed earlier in my remarks, it was stated: "In order to meet objections to the repayment from water revenue
out of past capital expenditure
of General Revenue, it is proposed that of that the sum of two per cent. capital, intended to be devoted to such repayment, should instead be used to build up a Renewals Fund which will be available to meet large renewals of capital equipment and will thus in future save further bor- rowing or expenditure from General Revenue Account.”
It must be plain to
any fair- minded person that the above quota- tion does not pretend to answer the criticisms against this particular charge which had been placed before Government. Our objection is not directed to the question as to how this annual sum of over $300,000 should be used; it is directed to the retention of this sum as an item on the expenditure side when, on the figures of revenue and expenditure supplied by Government, such reten- tion is not necessary in order that the actual expenditure may be paid for by actual revenue.
Modification Rejected
It is interesting to observe that the "modification" had in fact been con- sidered and rejected by the Financial Secretary in his original memor- andum, as the following quotation clearly shows:-"In principle I think it is most desirable that there should be provision against the contingency of renewal of all works and equip-
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