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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 " com- 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.
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.
This might be shown on the water accounts, instead of collecting it as part of the general rates as at present.
(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.
NOTES.
(i) Supplies to Government buildings would not be charged for but in order to prevent waste each separate office should be given a fixed allowance which should not be exceeded without authority.
(ii) On the abolition of the free allowances Government Officers occupying Government quarters should pay for water consumed like other con- sumers, except in such cases as police and medical staff occupying quarters in hospitals.
(ii) Military, Naval and Air Force supplies should be at the ordinary rates subject to the continuance of a privileged rate of 10 cents per thou- sand gallons in respect of certain Military Cantonments in Victoria
under a long standing agreement.
An estimate of probable income for 1938 on this basis is attached. (Appendix II).
11. Appendix II shows approximately what revenue would have been obtained in 1937 on the above basis. It will be seen that the net total of $2,156,607 is slightly more than was actually received in that year ($2,084,176) but less than the amount of $2,306,621 required to meet charges properly attributable to the Water Department. It is anticipated that consumption will be greater in 1938 as it is hoped that an unrestricted supply can be maintained; and that revenue in that year will therefore be adequate to cover charges.
12. In theory, the system of charge best suited to the special circumstances of Hong Kong, where we want to supply the essential minimum of water but severely to discourage excessive use, would be one in which all water in excess of a minimum domestic supply was charged at a much higher rate. There are very great practical difficulties in assessing a minimum domestic supply for Chinese tenements, the rating valuation being useless as a guide; but the possibility of eventually establishing such a basis of charge might be further examined after the new Water Department is established.
IV. Separate Metering of Floors.
13. The main object of this proposal is to secure closer control of the con- sumption of water by enabling the responsibility to be placed on the principal tenant of each floor in Chinese tenement houses instead of the landlord. The former is in a better position to prevent waste and it is unfair that landlords should have to pay with no effective means of controlling what their tenants use. It is proposed that separate meters should be installed on the request of landlords or in other cases where the Water Authority thinks it necessary. If made on the landlord's request he should pay the cost of installation.
14. It is not essential to separate metering that the water charges should be actually paid by the tenant instead of the landlord but it is an obvious further step to prevent waste. Where separate meters are installed therefore the charge should in future be on the tenant, but landlords should be required to make any necessary deposits if tenants failed to do so.
15. The change ought not, however, to be used to secure a monetary benefit to the landlord. In the main the adjustment between landlord and tenant ufust be left to ordinary economic forces but I would recommend that in announcing the change of incidence of charge Government should make it clear that landlords
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