We need a full review of COE system

CRUX OF PROBLEM: The Land Transport Master Plan published earlier this year should have included a fundamental re-look at how best to address the two problems produced by private cars - congestion and emissions.


    Dec 06, 2013

    We need a full review of COE system

    BEFORE writing this column, I searched on Google for Straits Times Forum page letters relating to certificates of entitlement (COEs) and received 92,500 results.

    By way of comparison, Google returned a mere 21,900 results for a search on "CPF" (Central Provident Fund) and only 6,960 on "HDB".

    The huge number of links relating to the COE policy, essentially a vehicle quota system where people bid for a certificate to own a vehicle, is a clear indication of how much Singaporeans care about private cars.

    What we really need is a fundamental review of the entire COE system, rather than marginal adjustments.

    A fundamental review would focus on the basic issues.

    Car ownership doesn't bother anyone. Car usage is the problem. Car usage presents three social externalities - congestion, emissions and accidents.

    Accidents should be regulated by criminal and civil law, together with insurance. How to manage congestion and emissions, however, is more controversial.

    Presently, the Government manages congestion through a combination of policies.

    These include Electronic Road Pricing (ERP), Additional Registration Fees (ARF), Preferential Additional Registration Fees (Parf), Customs duties, the off-peak car scheme, road tax, road-tax surcharges, "green" car rebates, excise duties, and parking regulations.

    Of this panoply, however, only the ERP directly regulates congestion by pricing the usage of roads by place and time.

    Why the Government applies so many indirect policies is difficult to understand.

    The COE limits the number of cars, which indirectly manages congestion. Indeed, so does the ARF and Customs duties (by raising the price of cars), and road tax (by raising the cost of owning a car). Why can't these measures be consolidated into one tax?

    Incidentally, the road tax, despite its name, is not really a tax on road usage at all. It is a flat charge per year, regardless of how much motorists use their cars.

    Worse, some policies seem to be counter-productive. The ARF is coupled with the Parf, which provides a rebate when an owner sells his car.

    To the extent that this cash rebate enters an owner's mental account for "car spending", it encourages those who sell their car to buy a new car rather than switch to public transport.

    By pushing up car prices, the COE and ARF may actually drive usage up. A typical rationalisation: "I paid so much for my car, so, I should drive it more."

    The result: more congestion.

    What about emissions? Current policies include differential excise duties on petrol, diesel and CNG (compressed natural gas) and the green-car rebate.

    But the most direct and most effective way to deal with emissions is to set a tax on emissions. Since it is impractical to place a meter on the exhaust pipe of every vehicle, the next best is a tax on fuel.

    The tax should be set at a higher rate on fuels that cause more harm to others.

    Earlier this year, the Government published the Land Transport Master Plan. It would be good if the plan included a fundamental re-look at how best to address the two problems produced by private cars - congestion and emissions.


    The writer is Lim Kim San Professor at the NUS Business School and professor of economics and information systems, National University of Singapore.

    His article first appeared in The Straits Times.