Entitlement And Your Motoring Money

SINGAPORE’S small size and constrained road and public transportation infrastructure have led to two ingenious money-making innovations for the government —  Certificates of Entitlement (COE) and Electronic Road Pricing (ERP).

Curtailing the growth of vehicles in Singapore is non-negotiable as far as the government is concerned. In fact, growth in the car population has been slowing in recent years and by February 2018, the government plans to reduce the growth rate of the car and motorcycle populations to zero.

Now, a COE represents the right to vehicle ownership for a period of 10 years. COEs are integral to the Vehicle Quota System (VQS), a landmark scheme implemented to regulate the growth of the vehicle population in Singapore, which is among the densest in the world. At the end of 2016, there were 601,257 cars and station-wagons on Singapore roads, down slightly from 602,311 at the end of 2015, according to government data.

One question that has cropped up — with zero car population growth, will COEs become obsolete?

The answer to this question is simple. No ,because COEs will continue to regulate the growth of the population of cars in Singapore. Regulating for zero growth would be no different to regulating for 2% growth or regulating for a 2% contraction in the car population.

So, COEs will continue to be used to regulate car growth, which brings up another question: Will COE prices rise within a framework of zero car population growth?

The recent round of COE hikes after the announcement of zero growth is possibly telling.

Demand And Supply And Public Transport

The government insists that the plan for zero growth in the car population is not expected to significantly impact the COE supply and its prices. COE prices will thus be related to the number of cars that are deregistered as their COE period ends at a given point in time and the demand for COEs at that point in time, relative to supply.

If COE prices rise, it would suggest that demand for COEs is greater than supply. If they fall, it means that supply is higher than demand. The latter scenario could conceivably dominate if public transport infrastructure improves. They may have to improve the management of some public transport organisations first. (See article Basic Apology Training). Theoretically, this could see the car population decline, pushing down COE prices as there will be fewer bids for COEs that have become available because of deregistration.

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However, at present, Singapore’s public transportation infrastructure continues to show signs of wear and tear, exacerbated by the rapid growth in Singapore’s population since the start of the new millennium.

It is clear now that the public transportation infrastructure did not grow in tandem with the population. The government is playing catch-up to its own population growth policy in many sectors, including public transport infrastructure.

In SMRT’s case, it is also now paying the price for concentrating for many years on growing its revenues outside its core function of providing a smoothly functioning public transportation system.

COE — Raking In The Money

In the meantime, Singapore continues to rake in money from private road transport.

In the Budget announcement in February this year for the financial year ending next March (FY2017), it was estimated that a total of S$9.247 billion in motor vehicle taxes and vehicle quota premiums will be forthcoming, up by 0.8% from S$9.171 billion in the previous financial year.

Car taxes and COEs are expected to account for 13.31% of FY2017’s estimated total operating revenue of S$69.45 billion, slightly lower than 13.36% of FY2016’s total operating revenue of S$68.667 billion.

With Singapore’s car population fixed to peak at just above the 600,000 mark, the government can continue to garner similar levels of revenues from vehicle owners going forward.

However, growth in operating revenues attributed to road taxes and COEs can logically only happen going forward if car taxes and/or COE prices rise. Don’t forget that focusing on growth is in the DNA of the Singapore government. As public and road transportation infrastructure will need to be continually improved, the money has to come from somewhere.

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As such, it is likely that the cost of owning a car in Singapore, which is already probably the highest in the world, will rise further, with more funds extracted from vehicle owners.

The specific channel through which this rise in costs come remains uncertain, though at this stage it seems that higher COE prices is the best bet.

It also would not be a surprise to see new innovations injected into the road transportation system that help with this revenue gathering in the government’s favour. As an example, a satellite-based ERP system is already in the works.

Images: Shutterstock

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