VEHICLE QUOTA SYSTEM (Progress report)

Dr Wang Kai Yuen asked the Minister for Communications and Information (a) whether the implementation of the vehicle quota system has met with his expectations; (b) what is the sum total of the excess the public has paid for Certificates of Entitlement (COEs) transferred to date over and above the successful bid prices; and (c) whether he will consider taking steps to remove the investment value of COEs.

Dr Aline Wong: Question No. 7, Sir.

The Minister for Communications and Information (Dr Yeo Ning Hong): Sir, the next two questions are inter-related. May I, with your permission, answer them together?

Mr Speaker: You may.

Dr Yeo Ning Hong: The quota system has been in operation for the past four months since 1st May 1990. It has provided us with effective control over the growth of vehicles in Singapore.

Based on feedback from the public, my Ministry has made two minor adjustments. Effective 1st July, 1990, tenders are held monthly instead of quarterly, and the temporary Certificate of Entitlement (TCOE) is now valid for three months instead of the previous six. Overall, the number of bids has come down from 21,700 in April to 14,900 in July and then further down to 9,700 in August.

Sir, the TCOEs are made transferable for a simple reason -to enable those who did not tender or were unsuccessful in the tender to obtain a COE from the secondary market. Transferability, in other words, buying and selling, is the basis of a free market. It allows market forces to arrive at the best assessment of current values of economic resources. That way, it provides for their efficient and effective distribution. The transfer price between a willing seller and a willing buyer reflects the market value. Of course, the market values of goods and services vary with time and circumstances. Such changes occasionally can be sharp and sudden.

Sir, there has been some interest among the public on the issue of the transferability of COEs. So let me take a little time and explain it as simply as possible. Let me illustrate how transferability works in our daily lives. Each day, we use or consume hundreds of items which we buy, not directly from the original producers, but from supermarkets, shops and hawker stalls, which in turn buy and sell these items freely. For example, do we require consumers to buy rice from the farmers directly? Do we require consumers to buy fish from the fishermen directly? Do we require consumers to buy shoes from the manufacturers directly? The answer is no. Similarly, we allow the resale of cars between private individuals in private transactions. We allow the sale of cars through second-hand car dealers. We cannot effectively stop transferability of TCOEs unless we also prohibit the resale of cars among individuals or through second-hand car dealers. Therefore, to compel every car buyer to get a COE directly from ROV only is impractical.

Sir, Dr Wang has also asked about the price between the buyers and sellers. The prices of COEs on the secondary market, are private transactions between willing buyers and willing sellers, and ROV is not privy to such information.

The unhappiness about the quota system centred round two main complaints. Often these two complaints are levelled together by the same individual or in the same newspaper article or editorial or the same consumer or motoring group. What are these two complaints? First, they complained that the quota premiums are too high, in other words, higher than what the bona fide buyer is prepared to pay and that this is a result of speculation made possible by transferability. Second, they complained that the speculators, people who resell their COEs, are making a lot of money by selling the COEs at a higher price.

Sir, those who made these two complaints missed the fact that if they look at these two complaints objectively, the two complaints are contradictory. If the quota premiums are too high, higher than what bona fide buyers are willing to pay, then how can the speculators resell their COEs for a profit and make a lot of money? And if the people who resell their COEs, indeed, do make a lot of money, how can the premiums be too high?

Sir, the quota system has been in place for the last four months. It has worked well. It has served its fundamental objective, which is to restrain the growth of cars. My Ministry will continue to monitor the operation of the system and, where necessary, we will make the appropriate changes in due course.

Dr Wang Kai Yuen: Sir, may I ask the Minister, since he did not address my question, whether the implementation of the vehicle quota system has met with his expectations? I assume that it has indeed met with his expectations. And if so, may I ask the Minister, in view of his own admission that speculators make a lot of money, how could he consider the implementation satisfactory when he had said these in Parliament on two occasions, and I quote:

"But I want to assure the House that the scheme will be devised in a manner that will not permit a cartel to be formed, nor would we allow people to use the quota system as means for speculation."

And further in response to another question on speculation, he had further declared very categorically in this House: "Don't try it!" And I believe that this remark had left an indelible impression on all who had watched him on television.

Would the Minister take this opportunity to enlighten the public on what he meant by these statements?

Dr Yeo Ning Hong: The Member has asked a number of questions and also made a number of assumptions. I will try and take them as they come.

Sir, I did say in my reply earlier on that the scheme had met the objectives that we set out, namely, to restrain the growth of vehicles. So, yes, the scheme has worked out well.

Secondly, whether the speculators, as have been called by the media and also by some other people, have made a lot of money, I have mentioned earlier that the ROV is not privy to, or does not know, what the transaction prices are. These are private transactions between individuals. I think many people have made a number of guesses. Whether those guesses represent the actual transacted prices, it is not possible for ROV to know. It is like people claiming that they sold their flat or their house for so many thousand dollars. It is not provable unless you are prepared to go and ask the individuals concerned.

Thirdly, the Member said that I advised people not to speculate. That is true, Sir. I advised Singaporeans not to speculate, because those who are familiar with speculations know that in the long run, speculators inevitably get their fingers burnt. There has been a lot of research done overseas where people speculate in money, in gold, in rubber, in wheat, in pork belly. And the established conclusion is that most speculators end up getting their fingers burnt. Sure, it is true sometimes speculators get short runs of good luck, and those are the occasions when they make money. But in the long term, speculators get their fingers burnt, and it is in that context that I advised Singaporeans not to try speculation.

Dr Wang Kai Yuen: Sir, may I ask the Minister whether my following line of reasoning is correct, since he did not answer my question on what is the sum total of the excess the public has paid over and above the bid prices? The quota system has been in place for four months and every month ---

Mr Speaker: Dr Wang, are you making a speech?

Dr Wang Kai Yuen: I am asking a question, Sir.

Mr Speaker: Ask your question then.

Dr Wang Kai Yuen: I would like to find out whether my figure is correct if we assume that the number of quotas per month is 3,500, and for each quota being transferred, the average excess the public pay over the bid price is from $500 to $1,000. If you multiply the period that the quota system has been in place, the excess which the individual has paid over and above amounts to either $14 million or a ballpark figure of that amount.

Is my argument correct? And if so, would he not consider this a loss to the state coffers, even though I agree with him that the actual price of the COE should be determined by market force? But, nonetheless, this transfer between private individuals should be considered a loss to the state coffers.

Dr Yeo Ning Hong: Sir, Dr Wang is a specialist in computers. I am sure his arithmetic is correct if he puts the correct numbers in. But, first of all, where did he get the numbers which he had begun with, as far as the transfer prices are concerned?

Sir, I said a moment ago that the resale of the COEs is something between individuals. We do not have the numbers. We do not know exactly what they are transacted at.

Mr Goh Chee Wee (Boon Lay): Mr Speaker, perhaps the Minister can provide some figures to show that out of all those who have successfully bid for a Certificate, how many of them have actually bought a car with the Certificate, how many of them have actually transferred or sold the Certificate, obviously for a profit, and how many of them are still holding on to the Certificate hoping to make more profits.

Dr Yeo Ning Hong: Sir, I do not have the figures with me at the moment. I believe they had been given in reply to questions in the press sometime back.

Dr Lee Siew-Choh: Does the Minister agree that fixing a quota is a means to raising of prices, for example, OPEC? If there is a quotaa, how does he square it with the so-called free market?

Dr Yeo Ning Hong: Sir, it is a very long jump from the quota for the number of cars allowed on the very limited roads that we have in Singapore to the cartel that the OPEC has. I wish OPEC will allow people all over the world to tender for oil that they have, rather than squeeze the consumers worldwide by attempting to fix an artificially high rate and turning down the supply of oil.

Sir, we allow a quota because we know the rate at which we are building roads in Singapore. And knowing that, if we allow unrestrained growth in the number of vehicles in Singapore, we are going to end up like all the other major cities in the world where people have cars, but cars do not move. That is not we think will contribute to the growth of our economy and to a better quality of life for Singaporeans.

Mr Chng Hee Kok (Tiong Bahru GRC): Sir, on the question of speculation, will the Minister consider administrative measures to slow down speculation, for example, by reporting those regular successful bidders to the Income Tax Department?

Dr Yeo Ning Hong: Sir, I have no doubt that the Commissioner for Inland Revenue knows how to look out for people who are not making the appropriate reports of profits made.

Mr Heng Chiang Meng (Cheng San GRC): Sir, after the stirring speech on free market and free competition, I would like to ask the Minister to look at other areas where the Government has really put a spoke in the operation of a free market. For example, there is a law to prevent anti-touting of cinema tickets, which means that somebody will buy all ---

Mr Speaker: Mr Heng, can you ask your question? You are making a speech.

Mr Heng Chiang Meng: I would like to ask the Minister whether he will be the forefront in the Cabinet to remove all this type of laws which prevent free competition and free market operations.

Dr Yeo Ning Hong: Sir, if the Member could be a little more specific on the measures that prevent the operation of free market in Singapore, I am sure the appropriate Minister will take up his suggestion, and will ask the officials to have a look at them.

Mr Heng Chiang Meng rose ---

Mr Speaker: Mr Heng, I think you are straying from the subject. Is your question related to the question asked by Dr Wang?

Mr Heng Chiang Meng: Mr Speaker, Sir, my question will be related to the explanation that the Minister has given to the question asked by Dr Wang.

Mr Speaker: All right. Ask your question.

Mr Heng Chiang Meng: Sir, the Minister has asked specifically for the type of laws. I have said that there is an anti-touting law on cinema tickets, and that is a law passed by the Government, and in this particular law it is an offence for people to buy too many tickets for resale purposes. And I see this as no different from the quota system.

Mr Speaker: So, what is your question?

Mr Heng Chiang Meng: Sir, I am answering the question . In this case, the Minister has asked me to be more specific, and I have provided the answer to that question.

Dr Yeo Ning Hong: Sir, I thank the Member for obviously supporting the position of the Government in allowing transferability of TCOEs. I believe it is the Minister for Finance, who is responsible for matters on collection of duty. I will ask the Minister for Finance to arrange for his officials to have a look at it.

Dr Wang Kai Yuen: Mr Speaker, Sir, may I ask the Minister whether he agrees that the quota allocation for cars in the category of 2,000 litres and above is too high, since the quota premium has been consistently lower for cars in the lower category as well?

Will the Minister not agree that the system is not working well when those who can afford bigger cars pay less, and while those who cannot afford bigger cars pay more? And will he consider changing the allocation as soon as possible?

Dr Yeo Ning Hong: Sir, the Member has said that the people who could afford pay less in terms of taxes. I think if you take a look at the various schemes that are currently in place, it need not necessarily be true that people buying bigger cars are paying less in terms of total taxes paid, because the ARF, the road taxes, etc are much higher.

Dr Wang Kai Yuen: Mr Speaker, Sir, my question was very specific, ie, you either pay more or you pay less for COE, depending on which category you are bidding. I am not talking about total taxation.

Dr Yeo Ning Hong: Sir, I do not want to take up too much time because there are other Members who have got various questions to be answered. So let me answer briefly. It is not so much the cost of a COE per se that the buyer of a car is interested in. The buyer of a car is interested in the total sum of money that he has got to pay to own a car. So when there are other taxes which are relatively high, the COE may on certain occasions be a little lower than the premium in another category. But we also have to bear in mind that the OMV of vehicles are coming down, the ARF is being lowered, the anticipation of end-of-year demand. These are some of the factors which affect the amount of money that potential car buyers are willing to bid for the COE. The cost of a COE is determined by the market. It is not determined by the Ministry. And we should allow the potential car buyers to decide for themselves how much they are willing to pay for the COE.

Dr Wang Kai Yuen: May I ask the Minister whether he agrees that we are not talking about the free market situation in the quota system. The supply of the COEs is determined by the Ministry, and given a certain number, the market then determines the quota premium. By changing the number of supply, the Ministry can actually change the prevailing premium of that particular category.

So, what I am asking the Minister is whether he agrees that in the current system, based on historical data, the allocation given for cars higher than 2,000 litres has been too high. And in my judgment, I believe it is.

Dr Yeo Ning Hong: Sir, the allocations were arrived at based on last year's distribution of vehicles in the different categories and their growth. If we follow the argument of Dr Wang and take it seriously, and that just because the luxury cars have got a lower quota premium compared with the big cars, that figure is therefore too generous, we should, therefore, reduce it. If we take that kind of argument to its logical conclusion, then we must also cut down very sharply on the number of motor-cycles because the quota premium for motor-cycles is very, very low. If we follow Dr Wang's logic, then the conclusion is that we have given too large a number for motor-cycles and, therefore, we should cut it down. In effect, we should allow only one single class of vehicles and let everybody bid for that one single category and have only one Premium.

Dr Lee Siew-Choh: Mr Speaker, Sir, the Minister has talked about fallacious statements made by people who have asked questions. I just want to point out that the Minister's statement is concerning the quota and the free market is also fallacious.

Mr Speaker: Dr Lee, could you ask the question?

Dr Lee Siew-Choh: Already, Dr Wang has said that if the quota should be raised, then the prices would be entirely different, but now - - -

Mr Speaker: Dr Lee, could you ask the question?

Dr Lee Siew-Choh: Yes. I just want to say that he has not answered my question and, therefore, would he really answer my question about how he would square up a quota with free enterprise.

Dr Yeo Ning Hong: Sir, quota squares up with the free enterprise very simply. In any given year, there is a certain amount of rice produced worldwide. So it is fixed and the free market will decide how much you want to pay for the rice.

In any given year, there are only so many kilometres of roads that we are going to put on. If we set off with the basic assumption that we do not want our roads to be over-congested, then the number of vehicles that we allow will have to be fixed. There is nothing incompatible with a given supply and allowing the market to determine what the price for that particular resource should be.