Two separate write-ups on COEs. Interesting debate going on, and I wait to see what the Govt would do to the current system.
The Straits Times
www.straitstimes.com
Published on May 23, 2013
EDITORIAL
Keep eye firmly on purpose of COEs
MAKING the vehicle quota system more socially equitable is a worthwhile objective. It is also a pragmatic response to the desire of more citizens in an increasingly affluent society to own a car. Hence the importance that Transport Minister Lui Tuck Yew attaches to public feedback in refining the certificate of entitlement (COE) system, which heavily influences the way in which the market allocates car ownership. In asking the Land Transport Authority (LTA) to consult the public and stakeholders before making any changes, he has underlined the need for a new policy to reflect informed public opinion on the issue of car ownership itself.
The unavoidable truth is that policy changes that benefit one group of potential buyers, who are competing against others for a limited privilege, could leave another group feeling aggrieved. Thus, a surcharge on owning a second car is arguably a fairer way of using COEs to regulate car ownership in land-scarce Singapore.
Some have argued that such an approach might be viewed as an anti-wealth measure that penalises economic success. Yet, such a surcharge would be not so different from progressive tax rates or heftier registration taxes for costlier cars, which are already in effect. These are used as ways of requiring those who can afford to bear more of the burden of paying for scarce resources to do so, a principle that few would object to. The difficulty of implementing such a surcharge, however, will be considerable but not insurmountable.
Clearly, something will have to give if the COE system is to be responsive to public aspirations. The rise in interest rates for car loans, for example, will add to the cost of car ownership. But it is important that changes do not go against fundamentals. These have to do with avoiding congestion and keeping traffic and people moving smoothly and efficiently. All other objectives - including the need to balance aspirations of car ownership against demands for social fairness - are secondary to this core purpose of the COE system.
It would be useful for the LTA's consultative exercise to be broadened into a comprehensive land transport review that examines the vehicle quota system, road pricing and usage of public transport as an integrated whole. At least some of the angst over car ownership could be assuaged by clearer public understanding of the fact that cars are a private good and not a public one, where the emphasis should rightly be on equity. Hence there will always be a need to use the market mechanism to allocate the limited number of cars that can be put on the roads. Aspirations to own cars cannot go on being assuaged without worsening congestion.
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The Straits Times
www.straitstimes.com
Published on May 23, 2013
COE system - steer clear of the populism pothole
By Samuel Ee
It is interesting that even as the Transport Minister emphasises that the COE system should remain market-based, he is essentially considering the redistribution of car ownership. Could it be that the Government is pandering to a vocal minority? Or are these the signs of a budding socialist movement?
The COE, or certificate of entitlement, was introduced in 1990 to control the car population and congestion. It complemented the existing high registration taxes by requiring a motorist to bid for the privilege of owning a car. This piece of paper with a validity of 10 years could cost anything from $1 to more than $100,000, depending on the state of the economy and the size of the COE quota. In recent years, the latter, as well as an increasing population and growing affluence, conspired to push COE premiums to new highs.
The result of grossly overpriced cars becoming even more expensive led many in Singapore to lament that vehicle ownership was out of their reach. Astronomical car prices also contributed to headline inflation.
So on Feb 25, the Government introduced progressive registration taxes and vehicle financing restrictions.
Now, it is setting its sights on what is likely to be a revamp of the COE system and - even if it is not saying it out loud - basically ensuring that the masses would be able to afford a car, come tax or high COE premiums.
But how do you do that without taking apart the free market system that is the COE bidding exercise? How do you do that in a society that has been told from Day One that this is a meritocracy, one where hard work is rewarded, and that those rewards can be used to acquire and enjoy such material comforts as are deemed appropriate?
Cars in Singapore may be obscenely priced but most understand why they have to be on this tiny island. But the minister's comments may open a Pandora's box.
On the surface, his first point makes sense - to retain the original purpose of COE Category A (for cars below 1,600cc). It is not right that luxury cars should encroach into the so-called bread-and-butter segment and turn Cat A into a mini-Cat B (for cars above 1,600cc). After all, that is what categories are for in the first place.
But the problem is the market does not remain static. If a Cat A COE is reserved only for cheaper cars, it is safe to assume the COE premium would be low. But for how long? Because its affordability will surely attract more buyers to that category, especially if the alternatives - Cat B or the open category - cost more. The market will find its own equilibrium. The problem is supply and demand - there are just too few COEs available for too many buyers.
No system is perfect, not the current COE system nor the one that will replace it. But at least, it is based on principles that Singaporeans were taught to accept. More importantly, if you cannot afford a new car, there remains an alternative - a second-hand one.
But it is the minister's second point about car ownership that could have social implications. With 7 per cent of car owners owning more than one car and their cars making up 14 per cent of all cars, some people are unhappy about multiple-car ownership.
What's next? No multiple ownership of property? Lynch the guy with more than one good class bungalow? It is a slippery slope. So far, ordinary folks have not had much opportunity to denounce the rich but this could highlight the divide more clearly and formalise "We are the 99 per cent" sentiments.
Maybe income tax could be raised or more wealth taxes introduced, but there are economic downsides to punishing the rich. We may not like them simply because they are rich but hey, that's life; who said it was fair? If the majority can accept that some are multimillionaires but most will never be, then we should let the well-heeled buy that Ferrari and/or Aston Martin in addition to an S-Class.
Moreover, a tycoon with five cars is unlikely to have any real impact on the roads. He is not the cause of congestion on the CTE because unlike the heartlander, he does not live in the north. Also, his five cars are never on the road at the same time and he is always out of town. Which merely reinforces the point that usage and parking charges could ultimately be the only real solution to easing congestion.
Finally, one very important reason cars should not be made even pricier and multiple-car ownership should not be prevented - diversity. If everyone were allowed only one car, then that car would probably be a seven-seat minivan because it has to be as practical as possible. Because no one will buy a coupe or a convertible or a two-seater, mid-engined sports car or anything that is remotely exotic.
So if nothing else, say no to a COE system that veers towards populism and wealth taxes as that will make the cars on our roads really boring to look at.
This piece first appeared in The Business Times yesterday.
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