CERTIFICATES OF ENTITLEMENT (Impact of increasing premiums)

Dr Wang Kai Yuen asked the Minister for Communications what is the negative impact of the ever-increasing Certificate of Entitlement premiums and whether the vehicle quota system can be further improved.

The Minister for Communications (Mr Mah Bow Tan): Mr Speaker, Sir, the prices of Certificates of Entitlement (COEs) are determined by market forces of supply and demand. Since the supply of COEs is fixed every month, the rising COE prices simply reflect the increasing demand for vehicles in the market.

COE prices fluctuate according to demand for vehicles which, in turn, is dependent on the state of the economy. This is borne out by past trends. During the Gulf Crisis of 1990, when there was some uncertainty about the economic situation, demand for vehicles dropped and COE prices dropped correspondingly. When the Gulf Crisis ended, demand picked up sharply and COE prices rebounded to pre-Crisis levels. Today, the economy is doing well. More people want to buy cars, trucks and buses, and are able to afford it, hence higher COE prices.

The only way to dampen COE prices is to increase the supply of COEs. My Ministry is now looking into various road pricing measures, such as the whole-day Area Licensing Scheme (ALS) and electronic road pricing which can help to control congestion and at the same time allow for increased vehicle ownership, in other words, more COEs.

Meanwhile, my Ministry will continue to monitor the Vehicle Quota System. We welcome any constructive suggestion which any Member of the House or anyone may have on this subject.

Dr Wang Kai Yuen (Bukit Timah): Sir, would the Minister give an assessment of the impact of COE of commercial vehicles on the cost of doing business in Singapore?

Mr Mah Bow Tan: I do not have a ready answer for the assessment but I do know that COE prices for commercial vehicles have gone up correspondingly with the economy and with demand and in the same ratio or thereabouts with the other COE categories. I do recognise that for certain categories of commercial vehicles, namely, the heavy goods vehicles, they have to pay double the COE payable by the smaller commercial vehicles. I suppose this is reflected ultimately in the cost of doing business. Nevertheless, there is a good reason for that. These heavy goods vehicles pay different taxes from the smaller goods vehicles. My Ministry is in the process of reviewing the difference in tax structure.

Dr Wang Kai Yuen: Would the Minister review the need of having multiple or several categories of private vehicles in view of the fact that there is very little price difference in the premiums of these categories?

Mr Mah Bow Tan: That may well be so, Mr Speaker, that the COE premiums today are tending to gravitate towards a common level among the various categories. However, I would like to remind the Member that when we first started off with the various categories for cars, we wanted to ensure that there would be some equity in the bidding process. In other words, those people who are bidding for COEs in the smaller car category are not competing with those who are bidding for the larger and more expensive cars. Nevertheless, ultimately, as I said earlier, prices of COEs reflect supply and demand and it is very much the case today that the demand for small cars is as high as the demand for the larger cars in respect of the number of COEs available. Hence, COE prices are tending to be about the same.

Dr Wang Kai Yuen: Sir, would the Minister consider channelling some of the unused COEs, in particular, motorcycle COEs, to the category where there is greater demand?

Mr Mah Bow Tan: We are currently reviewing the question of unused motorcycle COEs. We have to bear in mind of course the fact that these unused COEs have arisen as a result of lower than expected demand for motorcycles and we need to know the underlying reasons behind it. Unused COEs represent unused capacity as it were of road space and we need to make sure that this is equitably distributed if motorcycles are not using it.

However, this is still under review and we will be in a position to give a more definitive answer perhaps in the new year.