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be remembered that the system is not peculiar to Hong Kong, but is working satisfactorily in many other places and that, though it is easy enough to criticise, it is by no means so easy to suggest a suitable alternative.

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23. The physical conditions of this Colony render the collection and distribu- tion of water an expensive undertaking and at the same time necessitate provision for absolute control during periods of water scarcity. Similarly, it must be admitted that considering the nature and circumstances of the bulk of our population the only practical unit for water taxation is the unit of property and the only taxpayer who can be recognised by Government is the landlord.

24. We are unable to agree with the numerous suggestions we have received to the effect that payment of excess water charges on Chinese tenements should be a matter for settlement between Government and the principal tenant of each floor. In our opinion such an arrangement is not within the sphere of practical politics.

25. We are more in sympathy with the suggestion that, to facilitate the pay- ment of water charges as between landlord and tenant, the Government should be prepared to supply a separate water meter for each floor of Chinese tenant houses. In fact we are prepared to recommend that this should be done at the expressed request of either landlord or tenant subject to the payment of a suitable cash de- posit. We realise, however, that the universal application of this scheme will entail not only a large capital expenditure but also a considerable increase in annual maintenance charges and personal emoluments and we are hopeful that, if our final recommendations are accepted, the reasons behind the suggestion will disappear.

26. Since these recommendations postulate the adoption of an entirely new attitude towards the position occupied by water in Government finance, it is neces- sary to preface them with a brief synopsis of the present situation in this respect.

27. Until a few years ago all expenditure incurred on water, whether of a capital or working nature, was paid for out of the general revenue of the Colony, which in its turn was credited with all income received from this source. This system worked satisfactorily so long as the Colony's commitments on waterworks were on a fairly modest scale proportionate to the Colony's income; but there came a time when it was essential to embark on a large expensive programme of construc- tional works with the full cost of which it was manifestly impossible to burden the annual budget.

28. In all undertakings of this nature, where the main benefit will accrue to posterity, it is both reasonable and just that posterity should be called upon to shoulder some of the expense. This principle was admitted by the Government when they decided that these large constructional works should be financed out of loans. Up to date two loans have been issued, part of the proceeds of which has been ear- marked for waterworks construction, but so far only undertakings of major import- ance have been included in the category of "loan works".

29. From an accounting point of view, therefore, we have two systems at work, one of which has been superimposed upon the other. The result is somewhat confusing and renders more difficult the task of preparing an intelligible statement showing profit and loss at any given time.

'30. At our request the Water Authority submitted a statement, reproduced below, which sets out the total revenue from and expenditure on water for the years 1932 and 1933, together with the total amount required for loan services in respect of commitments on loan works. These figures were supplemented by evidence given before the Commission by a representative of the Water Department.