PURPOSE

This paper seeks Members' views on proposals relating to the revision of government fees and charges upon the expiry of the moratorium in September 1999.

BACKGROUND

2. It is a well-established policy of the Government to apply the "user pays" and "full cost recovery" principle for setting the fees and charges for most services provided. The rationale for this is to ensure that those who benefit from the services provided should pay for them, so that the costs of providing the services do not fall on the general taxpayer. The importance of the principle is illustrated by the fact that income from fees and charges account for a significant part of government's annual recurrent revenue (e.g. 9% in 1998-99). It underpins our low tax policy which is stipulated in the Basic Law. It is an important tool in the strive to achieve a fiscal balance which is also required by the Basic Law.

3. It is also a well-established policy of the Government to subsidize services provided in the education, health and social welfare areas. Users of these services are thus only required to pay fees and charges set to recover a fraction of the costs involved.

4. As a general rule, we review and adjust those fees and charges set on a full cost recovery basis on an annual basis to reflect changes in the costs incurred in providing the services. We do likewise for those fees of subsidized services in order to maintain the level of subsidy in real terms.

5. In view of the downturn in the economy, the Administration originally agreed to freeze the level of most fees and charges for one year, ending 17 February 1998. In his Budget Speech for 1999-2000, the Financial Secretary announced that the freeze would be extended for six months. He also stated that the Government would seek the views of LegCo Members with a view to reaching a concensus on the level of increase and the priority of adjusting different fees and charges upon the expiry of the moratorium.

ADMINISTRATIONS'S PROPOSALS

6. Because of the 18-month moratorium, full-cost recovery and maintaining the level of subsidy in real terms are no longer being achieved for most fees and charges. We have to adjust the level of almost all government fees and charges when the moratorium ends in September.

Rate of fee revision

7. As it is not possible for the Administration to conduct costing exercises for some 200 groups of fees and charges (comprising approximately 3 000 items) in the next few months, we propose to have reference to the movement of Government Consumption Expenditure Deflator (GCED) for the purpose of determining the rate of fee revision. In accordance with the GCED (1), we need to increase those fees and charges last revised in 1996-97 by 12% to bring them to the current price level. We do not recommend this magnitude of increase. We propose to phase out the increase over a longer period of time. For the coming exercise, we propose to increase these fees and charges by 5% only. In accordance with the GCED, we should increase those fees and charges revised in 1997-98 by 5%. However, we propose to increase them by 3% only. The very moderate levels of increase proposed take into account the slow recovery of the economy.

8. There will be some exceptions to the above proposals. They include a few fees set according to market rates of comparable services provided in the private sector (e.g. advertisement fees in the Government Gazette), ad valorem fees determined on the value of a product (e.g. asset realisation fees of the Official Receiver's Office), television licence fees which will be subject to a higher rate of increase in order to achieve full cost recovery over a shorter time frame as a quid pro quo for the abolition of royalties, a handful of fees which are achieving full cost recovery (e.g. film censorship fees), fees where legal amendments have been or will be introduced and which may affect the fee structure (e.g. trademark fees), and fees fixed at less than $10.

9. Two main areas of fees and charges are not covered in this exercise. They are hospital and clinic fees and welfare services fees, the bulk of which are collected by subvented bodies (e.g. Hospital Authority and social welfare non-government organisations). We are still in the process of consulting with these bodies on how the fees should be revised.

Fee Revision Timetable

10. We propose to stagger the fee revision exercise in four tranches over the next 12 months. We propose to proceed earlier with the revision of those fees and charges which have much less impact on the general public, which were last revised a long time ago, and which are falling substantially behind full cost recovery. Our proposed revision timetable is attached at Annex.

FINANCIAL IMPLICATIONS

11. On the basis of our above proposals, we estimate that additional annual revenue of $250 million will be generated upon full implementation.


Finance Bureau
1 June 1999