VEHICLE QUOTA SYSTEM

1.27 pm

Mr Mah Bow Tan: Mr Speaker, Sir, the Vehicle Quota System was implemented on 1st May 1990 after considerable debate and discussion, both inside and outside this House. It would be fair to say that the Quota System, despite its brief history, has become generally accepted as an effective and a reliable way to control the growth in our vehicle population.

However, one feature of the Vehicle Quota System has attracted much attention, namely, the transferability of the Certificate of Entitlement (COE). Many Singaporeans believe that transferability has attracted speculators, who have been able to profit by re-selling COEs to genuine car-buyers at a markup, and therefore driving up COE prices. The argument goes that without these speculators, prices of COEs would be lower. There is a sense of indignation that some people should be able to profit from a Government policy, which has been introduced for public good.

I can understand why some people are unhappy, especially those who have been unsuccessful in their bids. But I should also point out that the transferability feature was introduced precisely to cater for such unsuccessful bidders who are in urgent need of a vehicle.

During the Gulf crisis, when quota premiums fell, there was no criticism of transferability at all. But, with the end of the Gulf War, quota premiums have again risen and so has public criticism.

The Ministry of Communications does not believe that transferability increases the prices of COEs. COE prices are determined by market forces of supply and demand. As the supply of COEs is released at a steady rate, any changes in the prices of COEs essentially reflect changes in their demand. Speculators can influence prices only in the short term, not over the longer term.

This was vividly illustrated by the behaviour of COE prices over the last year. During the Gulf crisis, when the economic outlook was uncertain, and when the demand for vehicles was low, prices of COEs fell sharply. With the end of the Gulf War early this year, and with the recovery of the share market and property prices going up, COE prices have also rebounded as demand for vehicles picked up. Of course, the fact that the ARF was lowered twice by 15 percentage points in November last year and another 10 percentage points this year has also got something to do with it because people have factored in these two reductions, that is, this 25 percentage points saving into the cost of COEs.

Decision to hold a trial

However, the public still believes that transferability contributes to high COE prices. In the Prime Minister's community visit to Ang Mo Kio on 2nd June 1991, he suggested that a trial be carried out to test whether the transferability of COEs has in fact pushed up COE prices. The GPC on Communications decided to collect feedback from all interested parties on how such a trial can be carried out.

The public has responded enthusiastically, reflecting the keen interest in this subject. Opinions and suggestions have come through all available channels, through the telephone, the mail, the mass media, grassroots organisations and so on. To round this up, a dialogue session was held by the GPC on Communications together with the Feedback Unit on 13th July 1991 for grassroots leaders, car dealers, motorists and non-motorists alike. GPC's Report

The Chairman of the GPC, Mr Eugene Yap, submitted his report to me on 20th July 1991. It is quite evident from the report that many people have taken the trouble to send in their views or to speak up at the dialogue session. Based on this feedback, the GPC on Communications has made its recommendations on how the trial should be carried out.

Land Transport Policy

Mr Speaker, Sir, before I respond specifically to these recommendations, I would like to spend a few minutes to put this issue of COEs and the Vehicle Quota System itself in the context of the Government's overall land transport policy.

Our land transport policy objective, to put it very simply, is to keep traffic on our roads free-flowing so that people and goods can move about smoothly and efficiently. To achieve this, the Government has adopted a comprehensive, four-pronged approach, namely:

(1) Systematic town planning to provide for offices, schools, factories, shops, and recreational facilities close to housing estates so that the need for travel is minimised;

(2) To build a comprehensive network of roads and expressways on our limited land and also to maximise the capacity of these roads and expressways for carrying traffic;

(3) To develop an efficient public transport system, and to maximise the usage of this public transport system; and

(4) To manage the growth and usage of vehicles so that everyday, we can move around, for business or pleasure, in speed and comfort.

This multi-pronged approach to the problems of urban transportation is not unique to Singapore. The problems themselves are faced by major cities the world over. And if you ask any transport expert, whether he is a highway engineer or an urban planner or transport economist, all of them will agree on what needs to be done. But what is unique is that Singapore has implemented these solutions comprehensively and consistently over the last 15-20 years.

The result has been satisfying - smooth traffic, no hassles on our roads, our buses and trucks moving about at peak efficiency. This is a precious asset. I would say that it is as precious as our world-class port, our world-class airport and our world-class telecommunications infrastructure. It has helped our companies to maintain our international competitive edge. It has also enhanced our quality of life.

It has been achieved at some cost to the Government's popularity and also at some sacrifice on the part of the public. But the price of the alternative - congestion and gridlock - is even higher.

Economic Growth and Vehicle Growth

We should continue to ensure that our traffic is free-flowing. At the same time, there is a growing aspiration among our people to own a car. You call it a status symbol, or you consider it as a means to greater mobility, to greater independence, or you consider it simply as a time-saving way to get around. The fact remains that the desire and the ability to own a car will only grow stronger over time and as we become more affluent. The Government recognises this aspiration, and has factored this aspiration into our land transport policy-making process.

The experience of the past 15-20 years is revealing. The average monthly household income has almost doubled during this period. The Deputy Prime Minister gave some figures just now. In 1972 it was $1,200, and in 1987 it was $2,213 (both figures in 1987 $). This is a compounded annual growth rate of something like 4.2%. Coincidentally, during this period, the growth rate of the vehicle population was also 4.2%, despite the many vehicle restraint measures. ARF was introduced. ARF went up, road taxes went up, and the Area Licensing Scheme was introduced. Despite all these new schemes, ownership of cars continued to go up and kept pace with increase in household incomes.

If you translate this growth in the number of cars into the number of households owning cars, the percentage of car-owning households in 1972 was 17%, rising to 30% in 1987. If you express these figures in another way, there were 6 cars per 100 persons in 1972 and 9 cars per 100 persons in 1987. I asked for some comparable figures. We have to compare cities to make sure that there is the same basis of comparison. Look at the city close to us, Hong Kong. In 1989, Hong Kong had 3 cars per 100 persons. So long as our economy keeps expanding, the number of cars on our roads will continue to go up, and the percentage of households owning cars will continue to rise.

My Ministry estimates that, with the new road-building programmes and other enhancements that are being carried out to increase the carrying capacity of these roads, we should be able to sustain our current growth rate of vehicles of about 17,000 per annum, or roughly about 2.5%-3% per annum for the next 3-5 years. This means that within the next five years, another 40,000 to 50,000 households, or another 6-7% of households, will be able to own cars.

The Deputy Prime Minister mentioned earlier in his reply to a question that the Government's task is to manage this increase in the number of households owning cars, not to reduce the number of car owners in Singapore. The challenge is how to manage this growth without creating congestion.

Road Building and the Land Constraints

To sustain this growth, we must maximise whatever limited land we have set aside for the provision of roads and expressways, so that we do not choke on our own success.

Roads and expressways already use up something like 10% of the total land in Singapore, and this is almost as much as housing. Housing occupies 11%, roads about 10%. We need land for other essential needs - industries, reservoirs, parks, recreational land. Road-building cannot proceed indefinitely without encroaching on land that has been earmarked for these other purposes, and without eroding our quality of life.

Having said that, I am sure many motorists will congratulate the PWD for doing a remarkable job in providing an efficient network of roads and expressways, within this tiny island we call home. There is still scope for improving the network. The PWD will soon be embarking on the following new road-building projects:

(a) the new Kranji Expressway;

(b) the extension of the Pan-Island Expressway to Tuas;

(c) Phase III of the Tampines Expressway;

(d) Phase II of the Seletar Expressway; and

(e) the widening of the PIE, along the stretch between Kallang Bahru and the Bukit Timah Expressway.

The PWD also plans to construct flyovers and interchanges to relieve traffic bottlenecks at some seven major junctions. Some of the major junctions which you may be familiar with include those at (a) Bukit Timah Road/Farrer Road/Adam Road junction; (b) Holland Road/Farrer Road junction, and (c) the Yio Chu Kang Road/Ang Mo Kio Avenue 3/Hougang Avenue 2 junction.

Besides adding to our road network, the PWD has also been maximising the capacity of our existing roads using state-of-the-art technology. The GLIDE system which essentially improves travelling time by synchronising traffic lights has been successfully implemented in the CBD and will soon be extended to cover a wider area.

The new road-building programme and other enhancements will increase the carrying capacity over the next five years by something like 15%. This is the basis for concluding that a vehicle growth rate of about 2.5% to 3% a year will not cause additional congestion over the next three to five years.

In the longer term, the introduction of new usage-based traffic management measures such as the electronic road-pricing or ERP will give us more room to allow more Singaporeans to own cars.

But I must caution that there is a limit to this. So long as economic growth is strong, demand for vehicles will outstrip the supply of available road space and our ability to increase the capacity of these roads. We will still need to manage the growth of our vehicle population via policies like the Vehicle Quota System. But growth there will be.

The Vehicle Quota System

On this note, Mr Speaker, Sir, I would now like to return to the Vehicle Quota System and the GPC's recommendation for a trial bidding system.

(a) Structure of Trial

The GPC has reported that there was no consensus on the structure of the trial. A wide range of options were suggested. Many felt that all the COEs in all the eight categories should be made non-transferable. So that is one option. Others felt that only half of the COEs in all categories should be non-transferable. So you slice all the eight categories in the middle. Another group suggested that only COEs in some categories should be made non-transferable and leave the rest alone.

The GPC has recommended this third option, ie, that COEs in some, but not all, categories should be made non-transferable. As car buyers form the majority of those arguing for non-transferability, the GPC recommends that the four main car categories, in other words, Categories 1-4 should be made non-transferable, while the other four categories remain status quo.

The GPC observes that distributors of commercial vehicles have made a good case for the COEs of buses and goods vehicles to remain transferable. This is to allow businessmen to react to business opportunities. If they want a vehicle urgently, they can find one even if they have not been successful in their tender.

The GPC also makes the point that the flexibility of the Open category should not be compromised by making it non-transferable. As for Weekend Cars, being mostly purchased for leisure travel, the GPC feels that they also can remain status quo, in other words, remain transferable.

Finally, the GPC notes that there is no need to make motorcycle COEs non-transferable. Based on feedback from motorcycle distributors that, as fewer Singaporeans are buying motorcycles, there is very little speculation in this category in the first place.

My Ministry has considered the recommendations of the GPC. We are in general agreement with the thrust of the recommendations, in other words, make some of the categories non-transferable and keep the others transferable. Specifically, I agree that Categories 1-4 will be non-transferable. However, I will include the Weekend Car Category in this group as well, so that all the car categories will be made non-transferable for the trial. We should, as far as possible, treat Weekend Cars similarly with other cars.

Although motorcycle distributors prefer the status quo, I anticipate that there will be calls for non-transferability from motorcycle buyers in the event that COE prices go up. Since motorcycles and cars are both means of private transport, they should be treated the same. I will therefore make motorcycle COEs non-transferable as well.

(b) Trial Period

The GPC has recommended that the trial period be for 12 months. They feel that this period of time is needed for the public to adjust to the new system and also to take into account short-term seasonal fluctuations. This is a valid point. This recommendation will be accepted.

(c) Validity Period for Non-transferable COEs

What about the validity period for non-transferable COEs? Many speakers at the dialogue session have asked for an extension of the validity period for non-transferable COEs, from the current three months to six months. The argument is that we should allow sufficient time for prospective buyers to choose their vehicle and to register the vehicle. Others have proposed the alternative of keeping the validity period unchanged at three months, but allow for a partial refund if it is unused. In view of the restrictions imposed by non-transferable COEs, I will extend the validity period of these non-transferable COEs from three months to six months, but without refund for unused COEs. Transferable COEs will remain valid for three months.

(d) Role of Motor Distributors

Another issue concerns the motor distributors. Should we allow them to bid up to the limit of 30 COEs which are currently transferable to their clients? The GPC has reported divided views on this. Some were of the opinion that motor distributors, in their effort to sell more vehicles, would resort to a bidding war to lay their hands on more COEs. Others felt that motor distributors should retain their allocation of COEs to cater to impulse buyers and unsuccessful bidders, in other words, as a service to their clients. Yet others expressed concern that major motor distributors would be given an unfair advantage if they were allocated transferable COEs when we have a non-transferable system. I am told that this issue found no consensus even among motor traders. On balance, I am persuaded by the arguments against allowing motor distributors to continue with transferable COEs. Except for COEs in the Open Category, during the trial each person who wants to buy a car should bid for his own COE. The 30 bids that are allocated to each motor distributor will be withdrawn.

(e) Transfer of new cars

The GPC also highlighted an interesting point made by some members of the public that, even when COEs are non-transferable, speculators can still try to beat the system by registering a new car and then re-selling it as a new car. So this has given rise to suggestions that we should now disallow the transfer of newly-registered cars so that we plug this new loophole. I do not intend to take up this suggestion. If we carry this to its logical conclusion, we would have to start preventing leasing companies and hire-car companies from leasing out new cars in order to get around the non-transferability of COEs or non-transferability of new cars. Summary and Starting Date of Trial Period

Let me now summarise the decisions to be taken. The trial will begin with the September 1991 tender exercise, for COEs valid from October 1991. The trial will last 12 months and the following will apply during this period.

Structure of Trial

The COEs for the following categories of vehicles will be non-transferable, namely, Category 1 (small cars), Category 2 (medium cars), Category 3 (big cars), Category 4 (luxury cars), Category 6 (motorcycles) and Category 8 (weekend cars). The COEs of the other two categories, namely, Category 5 (goods vehicles and buses), and Category 7 (Open), will remain transferable.

Validity Period

The validity period for non-transferable COEs will be extended to six months, while transferable COEs will remain valid for three months. There will be no refund for unused COEs.

Role of Motor Distributors

For the period of the trial, the 30-bid allocation to motor distributors, which was meant for transfer to their clients, will be withdrawn.

Conclusion

Mr Speaker, Sir, the GPC, in its report, stated that in coming up with its recommendations, foremost in its list of considerations was that the trial should not only be a fair one, but should also be one in which conclusive results could be obtained.

How will we measure the results of the trial? The trial is meant to test whether transferability has led to higher COE prices. Without transferability, so the argument goes, COE prices will fall. The public expects prices to fall. If they do fall, then I will be happy for the car buyers who will benefit, and the Ministry of Communications will make non-transferability of COEs a permanent feature of the Quota System. If they still go up, then I hope the public will accept that transferability is not to blame for high COE prices.

Whatever the outcome, I believe that the trial package that I have outlined is the fairest under the circumstances, and it is one which takes into account a broad spectrum of views and concerns that have been raised by the public.

The Quota System will continue, whether COEs are transferable or not. The Government believes that transferability provides for efficiency, and efficiency brings maximum benefits, maximum convenience to all, in the long run. The public believes otherwise. The Government is prepared to put it to the test. But whatever the outcome, we have already benefitted from active public participation in policy-making. If out of this exercise arises a better understanding of the problems that we face and a realisation that the solutions are not always simple or straightforward, then we will gain even more.

Dr Wang Kai Yuen (Bukit Timah): Mr Speaker, Sir, allow me to congratulate the Minister on the flexibility he has shown in this policy on the transferability of COEs. And in adopting the majority of the recommendations on COEs, I believe that the Minister's new policy will go a long way towards satisfying the demand of the motoring public. In fact, the Minister is more than generous.

Mr Speaker: Dr Wang, could you ask your question, please?

Dr Wang Kai Yuen: Yes, I will ask my question. I want to find out from the Minister why he is more than generous in granting what the GPC had asked for, by including two additional categories for non-transferable COEs. I can understand the rationale behind the Weekend Cars. Perhaps it is because of the lack of playing fields, the Minister is worried that most of the speculators would then crowd to participate in the bidding for the Weekend Car COEs. On the other hand, the question on motorcycles -

Mr Speaker: What is your question?

Dr Wang Kai Yuen: My question is: why is he so generous?

Mr Speaker: Do you have any further questions? Or are you making a speech, Dr Wang?

Dr Wang Kai Yuen: I am asking questions.

Mr Speaker: Could you ask your question, because I believe there are other Members who would like to ask questions?

Dr Wang Kai Yuen: Yes, Sir. Would the Minister elaborate on the reason why he has included motorcycle COEs into the non-transferable category? There was no evidence of speculation in that particular category. There is no user demand. In fact, the users requested, "Please don't change the system." So what are the reasons for including the motorcycle COE into the non-transferable category? It is likely that as a result of this -

Mr Speaker: Dr Wang, I must insist that you ask your question. Otherwise I will have to ask you to resume your seat.

Dr Wang Kai Yuen: All right. What would the Minister do if the users of motorcycles come back to the Minister and request for converting it back to the transferable category? Because it is likely that most of the users will be inconvenienced when the COE for motorcycles is converted to non-transferable COE.

The second question I have is: what criteria will the Minister use at the end of the trial to determine whether the COE will be transferable or non-transferable? Under what conditions will he decide that certain COEs will continue to be transferable or non-transferable?

Dr John Chen Seow Phun (Hong Kah GRC): Mr Speaker, Sir, may I ask the Minister, firstly, whether he thinks that the suggestion to make successful COE bidders pay for their bidding prices instead of the lowest successful price is a good one, and whether he intends to consider the implementation of this suggestion to further improve the COE scheme?

The second question is related to what Dr Wang has asked, ie, at the end of the trial period, how does he intend to carry out the comparison? Will he compare month by month, or will he take a certain formula to compute the price under both the new and the old system?

Mr Mah Bow Tan: Mr Speaker, Sir, let me take Dr Wang Kai Yuen's questions first. He asked why motorcycle COE is made transferable. I think that was the gist of the question. The question as to why I am more generous does not come into the picture, because the GPC itself has done an excellent job in canvassing a wide range of opinions and has come out with a report which has captured, I should say, the bulk of the views that have been expressed. In fact, the argument could very well be made to include every category, all the eight categories, of vehicles in the trial, and make them non-transferable. It was, I should say, a very tempting alternative. But the arguments for keeping buses and trucks and the Open category transferable were convincing ones. And this is why we have kept them out of the trial and just stuck to the six categories.

Why motorcycles? I think I did explain in my statement earlier. Reading the GPC report carefully, it was clear that the people who are making the point that motorcycles are not subject to speculation were mainly the motorcycle distributors. I think that is a correct interpretation of the report. I am anticipating that the motorcycle buyers themselves, when they see that their motorcycle COE prices are also going up, will start to lobby and ask why is it that they are not included in the trial. So I am anticipating a situation which is very likely to arise and I would rather put them in now. If, as the Member suggests, there are demands for them to be left out of the trial, this is something that we can consider after the 12-month trial is over.

What are the criteria to be used? Again, this is another point that I have touched on in the statement. Maybe I could repeat the point that I made earlier. Let me just remind the House that this trial is intended to test the proposition that transferability causes prices to go up. My Ministry contends that prices go up and down as a result of market forces. During the Gulf War, prices went down because demand was low. Prices are now up because demand is high. It is as simple as that. So one of the ways that we will be monitoring the trial is to check or monitor the COE prices of each of the categories of vehicles before and during the trial.

Dr John Chen has asked what specific criteria we will use. We can use several criteria. One would be to check the average prices before the trial and compare them with average prices, 12-month average prices, when the trial is going on. Another way is just to graph them and to plot a mean. These are areas which we can continue to discuss with the GPC. But if prices do go up during the trial, then I think we would be quite safe in saying that transferability is not the factor that has made COE prices to go up.

One other point that Dr John Chen has mentioned is whether we should consider making COE bidders pay what they bid. At the moment the system that we are practising, the so-called Dutch auction system, is a system which has been practised successfully in other tendering exercises. I mentioned, for example, the tenders for textiles quotas and for CFCs. There is no clear-cut evidence that one is different from the other as far as total revenues are concerned at the end of the day, and it is not Government's intention to use a system which can collect more revenue. But let me just say that the pay-as-you-bid system that has been suggested does not mean that everybody is going to be very happy. The reason is very simple. In the pay-as-you-bid system, some will be paying higher and some will be paying lower, and it does not automatically follow that those who pay lower are the ones who are in more urgent need of a car or the ones who are in the lower income group. It really depends on how urgently and how great a desire they have to own a car. So I do not think at this moment it is superior to the current system. And for the purposes of the trial, I suggest that we stick to the same principles as we had before the trial to make sure that there is some reasonable measure of comparison.

Dr Lee Siew-Choh: Consequent on what the Minister has just said, the Government is very keen on market forces and they want conclusive results of the new system. Dr John Chen has already asked the question whether those people who make high bids be made to pay the amount of the bid so that they will not make high bids. I think that is a very reasonable request and I understand many people are asking how is it that this has been left out. We should not talk about urgent need. It is not about urgent need at all. It is about whether people will make a high bid or low bid.

Mr Mah Bow Tan: Mr Speaker, Sir, as I indicated in my reply earlier, even if we were to move into the system of pay-as-you-bid, it does not necessarily follow that everybody who is a successful bidder will be happy because there will be a range of successful bids. The present practice is that everybody who is successful pays the same. I think there are merits in the current system and we should keep it unless it is conclusively proven that it is inferior to any other proposal.

Assoc. Prof. Maurice Choo (Nominated Member): Sir, would it not be more accurate to conduct the trial in two stages? Firstly, a 12-month cross-over from transferability to non-transferability, and then a 12-month period when you cross back. This is a basic principle in comparison. You have to cross over twice to minimise the effect of time.

Mr Mah Bow Tan: Sir, I think it is an interesting proposal. The Ministry will study it. We still have some time, because we are in the first stage of this proposed two-step cross-over trial. We can take it in two bites.

Mr Chay Wai Chuen (Brickworks GRC): Can I ask the Minister why he would like to extend this currency period before the first transfer to six months? It is now three months before you make your first transfer. So why does he want to extend this time to six months? First, there is a difference in comparison. Second, one of the fears expressed is that people will play the market, ie, speculation. If you extend the period to six months, the opportunity for this play of market will be more ready.

Mr Mah Bow Tan: I am not so sure whether I understand the question correctly. But I did indicate that extension from three to six months is only for non-transferable COEs. So I do not see any more opportunity for the so-called speculators to play the market in the new system.

Mr Chay Wai Chuen: Currently, you can have a period of three months for your transfer of the COE. If you allow this period now to be six months before the period of the currency is "dead", so to speak, first, there is a problem of comparison in what Prof. Maurice Choo has just talked about evaluating two systems; and second, I am afraid this might generate more room for people to speculate.

Mr Mah Bow Tan: Speculate in what?

Mr Chay Wai Chuen: They can easily hedge the Certificate of Entitlement into the vehicle.

Mr Mah Bow Tan: No. The reason why we extended the period from three months to six months is really a practical one because if it remains transferable, the COE can be disposed of after three months. So if there is a real genuine difficulty in not registering the car, one could always sell it away. This is really part of the convenience of the transferability system. But if you take that away, then you are left with a certificate which cannot be transferred. If for whatever reason you are unable to register your vehicle, then it would be a worthless piece of paper after three months. I think in consideration of that and in view of the representations that have been made, we have decided there is no harm in extending it to six months, which is a reasonable period. But we have decided not to have any refunds. That was the other alternative.

Dr Lee Siew-Choh: Mr Speaker, Sir, the whole complaint about this COE is that it is too highly priced. If -

Mr Speaker: Dr Lee, could you ask your question? You are not permitted to make any speech.

Dr Lee Siew-Choh: Yes. This is the question that follows.

Mr Speaker: Could you ask your question, please?

Dr Lee Siew-Choh: If people are allowed to make high bids and only pay for the low bids, that would encourage people to make high bids. Would it not be more conclusive therefore, Sir, for the Minister to have all bidders pay the amount that they bid?

Mr Mah Bow Tan: Sir, I think the wisdom was that it was transferability that created these high COE prices. I think there was little public speculation that it was any other factor. What the Government is trying to do with this trial is really to test this theory that it is the transferability aspect of the Vehicle Quota System that is causing prices to shoot up to unacceptable levels. If that is true, then I think it is incumbent on the Government to make sure that we change the system. But we have stated all along that it is due to market forces. It is not due to transferability. Let us test it out for 12 months.

Dr Lee Siew-Choh: Would it be convenient for the Government to test two theories at the same time?

Mr Mah Bow Tan: Sir, we can consider that when Prof. Choo's proposal, if it is found workable, is implemented in the second tranche of the 12-month trial.