Raise water prices by as much as 100% to reflect production cost: Economist

Raise water prices by as much as 100% to reflect production cost: Economist

Economics professor Ng Yew-Kwang also thinks that imposing a significant increase at once, instead of in phases, would be more effective in changing habits.

tap water
File photo of a cup filling up water from a tap. (Photo: AFP/Anne-Christine Poujoulat)

SINGAPORE: Faced with the news that the price of water will increase by 30 per cent over the next two years, Professor Ng Yew-Kwang is of the opinion that the hike should be even larger, to reflect the cost of water production.

"In my view, it's too little," he told Channel NewsAsia on Friday (Feb 24). "From an overall economy point of view, we can increase it even more.

"I would prefer at least 50 per cent - if not (a) 100 per cent (hike)," said the Nanyang Technological University economics professor.

Prof Ng pointed out that water prices have not been raised since 2000 – nearly two decades ago. He added that it is also costly to produce water - and how much the public pays has to reflect this.

National water agency PUB earlier revealed that the cost of operating the country's water system has more than doubled in that time: It cost half a billion dollars to operate Singapore's water system in 2000, and the amount had gone up to S$1.3 billion by 2015.

The Government also said it would invest more in water infrastructure to meet growing demand and boost Singapore's water resilience, especially in the face of climate change.

Following the hike, Singapore's water prices will be on par with European countries like Germany and Denmark, said Prof Ng.

"If you compare internationally, to other Asian cities like Taipei, Hong Kong and Beijing, Singapore's prices are higher. But if you take into account the income level, then it's not high.

"If you compare it with other European countries, their prices are much higher."

Prof Ng said that in most countries, water prices tend to be too low, rather than too high, as the public thinks water, which is essential to life, should be free.

"If consumers pay less, then the government will have to make up the difference. Then that means the government has to collect taxes from other sources … That has a disincentive effect.

"As long as the price of water is not more than the price of production, increasing the price towards cost of production will increase efficiency by encouraging consumers to save appropriately."

Water prices will be raised in two phases, first in July and again next year.

But Prof Ng said that increasing the price at once, instead of in phases, would be more effective in changing habits.

"If you increase it in two steps, then each step is not very significant," he said. "People don't even notice it and will forget about it soon. But if we have a one-step significant increase, then it has a shock effect.

"If you want to do it in steps, then it should have been increased 10, five years ago. In my view, it's already too late because popularly, water is perceived to have low prices and hence maybe the Government was hesitant to increase the prices to make the public happy.

"But from a purely economic point of view, water prices should have been increased many years ago."

water prices - annoucned at budget 2017

Industries that use a lot of water in their operations - like manufacturing and construction – are expected to feel the pinch.

"What businesses are really feeling is not just about the water, but the fact that costs are high and that this is an added factor to increase in costs," said Mr Kurt Wee, president of the Association of Small and Medium Enterprises.

He added that the price hike is expected to be passed on to consumers.

"Businesses will price up the costs of their goods and services accordingly. There's no doubt about that because there's no way that businesses can keep absorbing costs.

"And we're in the climate where demand is falling; businesses are experiencing a shrinkage of demand. So I'm quite sure it will be passed down to the customers."

However, businesses like food court operator Kopitiam will be absorbing the added costs. Water bills for its stall holders are projected to increase by S$30 to S$60.

The company will also encourage stall holders to conserve water. "We are thinking of installing a prepaid meter where they can monitor their water usage, so they are more conscious of how much water they are using," said Mr Vincent Cheong, corporate communications manager at Kopitiam.

He added that the company has urged stall holders not to increase the price of food and drinks.

Source: CNA/dt