CERTIFICATES OF ENTITLEMENT (Collection from tenders)

Mr Heng Chiang Meng asked the Minister for Communications how much was collected from the tenders of Certificates of Entitlement in this financial year up to the latest convenient date and what is the estimated collection for the full year.

The Minister for Communications (Mr Mah Bow Tan): Mr Speaker, Sir, may I have your permission to take Questions 1 to 4 on the Order Paper together as they are inter-related?

Mr Speaker: Yes.

Mr Mah Bow Tan: Thank you. Sir, the Certificate of Entitlement (COE) or Vehicle Quota System (VQS) was implemented in May 1990. The objective was to control congestion by restricting the number of vehicles which use our roads. Prior to the VQS, vehicles were increasing at the rate of about 6% per annum. Since then, we have effectively kept the increase to about 3% and our roads have remained relatively congestion-free.

The VQS has successfully achieved its objective. It is here to stay. The public accepts the need to curb the vehicle population. But their major unhappiness today is that COE prices have risen sharply over the last few years, which they have attributed to various flaws in the COE system. In other words, if we remove these perceived flaws, COE prices will come down. Unfortunately, this is not so.

My Ministry has studied many proposals to fine-tune and modify the system to discover better and fairer ways to allocate the limited number of COEs, and therefore bring down COE prices. But we reluctantly concluded that all these cannot change the fundamental laws of supply and demand.

COE prices have risen sharply because the economy has grown strongly over the last few years, incomes have risen and people are confident of the future. In a situation where supply of COEs is limited, and more and more people are able and willing to pay more, prices must go up.

We can change the current bidding system to a balloting system, as suggested by Dr Lau Teik Soon, or to a queuing system, as suggested by others. Contrary to popular belief, this will not lower COE prices for the general public. It only means that the lucky ones who are successful in the ballot, or who are first in the queue, will get the windfall profit, while others who are not so lucky or not so quick, will buy the COEs, or the COEs plus cars, off them at market prices.

The Government decided on the tender system because it is the fairest and most efficient way to allocate a scarce resource. COEs will go to the persons who value them most and who are able and willing to pay. This is fair not only to those who bid for COEs, but also to all Singaporeans. COEs as well as the revenue from COEs belong to all Singaporeans. It is the Government's responsibility to collect the market price for the COEs and to use the substantial revenues so collected for public projects which can benefit everyone, such as bus and MRT infrastructure, and also to fund education, health and housing programmes. Without COE revenues, there would be a big gap in the budget which would have to be filled by other means, such as raising taxes.

Mr Heng Chiang Meng asked how much was collected from tender of COEs. In the first five months of this year, April to August 1994, total COE revenue collected was $730.8 million, or an average monthly collection of $146.2 million.

My Ministry is not in a position to estimate the collections for the rest of this financial year as COE prices, as I have explained before, are determined by market forces, in particular by the demand for motor vehicles, because the supply is limited.

There has been no shortage of suggestions on how to change the COE system so as to bring prices down. My Ministry has examined each and every suggestion conscientiously. These include Pay-as-You-Bid, preventing double transfers and proxy bidding, extending the validity of COEs, banning COE loans, and so on. I have explained on many occasions why these changes will not lower COE prices and why they will instead cause inconvenience to genuine car buyers.

Another category of suggestions seeks to restrict the eligibility for COEs to specific groups of people, eg, the disabled, to those who pay tax, to those who do not own any car, and so on. These suggestions are also unworkable. The Government can only control the total number of cars on the roads, which it does through the VQS system. It cannot decide who should be allowed to own a car and who should not. Nor can it set up enforcement systems to make sure that people who do not deserve to own a car do not somehow make separate private arrangements. The free market, not Government rules, must decide who owns cars, according to people's ability and their willingness to pay.

Nevertheless, although my Ministry is convinced that all these suggestions will not succeed in lowering COE prices, I sense a strong public perception and hope that they will make a difference. I am therefore prepared to consider implementing some of these suggestions on a trial basis. The most popular suggestions so far are to introduce Pay-As-You-Bid and to discourage double transfers. My Ministry will look into the mechanics of conducting an experiment to determine whether each of these proposals will make a difference. I intend to deal with double transfers first. This is being practised by dealers in order to work around the rules on non-transferable COEs which we introduced some time ago. They now transfer brand new cars instead of COEs. The cars come with the COEs.

However, we must then find a way to cater for legitimate car buyers, many of whom prefer to obtain their cars with the COEs speedily through car dealers without going through the hassle of bidding for COEs themselves, because this is the root cause of the double transfer phenomenon.

I have spoken to the GPC Chairman for Communications, Mr Heng Chiang Meng, to ask his GPC to help my Ministry conduct this experiment, and he has kindly agreed. The views and suggestions from other Members are of course most welcome.

The only sure way to moderate COE prices and to enable more Singaporeans to own cars is to increase the supply of COEs. But our dilemma is this: how do we increase the supply without at the same time causing congestion?

Regulating usage will help. We can increase COEs if we can discourage motorists from using their vehicles at peak periods or along congested roads. For example, the whole-day Area Licensing Scheme (ALS) has evened out traffic flow into the CBD and brought about better utilisation of the roads there. The success of the whole-day ALS allowed us to increase the number of COEs this year without adding to congestion. More recently, we introduced the Off-Peak Car (OPC) scheme which offers a substantial discount on the upfront cost of buying a car as well as a rebate on the annual road tax. An OPC owner enjoys the full benefits of the scheme if he uses his car sparingly. If the scheme is popular, we can increase the supply of COEs to allow more people to own cars without causing congestion.

The Government will continue to pursue further measures to restrain usage. Electronic Road Pricing will not be ready until the end of 1997, at the earliest. In the meantime, we will carry out further studies of traffic flow in and around the city. The surveys will give us a basis to adjust the whole day ALS scheme. We are also studying extending road pricing to other congested roads and highways, such as the CTE, PIE and ECP. My Ministry will have specific proposals by next year. If and when these additional measures are successful, we will release more COEs.

Finally, let me bring the debate on this issue back to where I feel it rightfully belongs. The real issue is not whether COE prices are high but whether transportation in Singapore is efficient and affordable. The only practical long-term solution for Singapore, which is so short of land, is not more cars but better public transport. The Government has invested heavily in public transport infrastructure. We will do more, as the public has urged us to.

The MRT extension to Woodlands will be ready early 1996. I have asked MRTC to re-study the viability of the North-East Sector line, cutting through Serangoon and Punggol. Their report will be ready by February 1995. We should be able to take a decision on this soon after. We are also looking into extending the MRT to Changi Airport, and building an LRT (light rail transit) system for the Marina Centre area. Next year, MRTC will commence feasibility studies on a possible Kallang line, as well as extending the existing system from Boon Lay either to Tuas or Nanyang.

Many MPs and members of the public have suggested introducing light rail systems as an additional form of public transport. I have instructed MRTC to study the potential of light rail, especially as an internal feeder service for new towns. For a start, they will focus on two new towns - Bukit Panjang and Kangkar. If these are viable, we can build light rails in the other existing new towns to supplement or replace the bus feeder services. For new towns presently under construction, HDB is already reserving land for the right of way for possible light rail systems.

My Ministry, together with the Ministry of National Development, has also formed a committee to look into ways to improve accessibility to MRT, and to provide more convenient transfers between MRT and other modes of transport.

On buses, the Public Transport Council recently approved a new set of comprehensive bus service standards which will ensure that basic bus services are accessible, reliable, affordable and user-friendly. More Bus-Plus-type services will be introduced to cater to those willing to pay more for a higher level of service. To-date, a Tibs/SMRT joint venture is operating four routes. There are other interested operators. We have recently approved one who will run two more new routes. Another operator has indicated interest to run another 10 new routes.

Sir, there is much we have done but we can do more. My Ministry will work towards a comprehensive public transport system which will offer commuters a range of services at various fares, commensurate with the different levels of service they provide so that, while not every Singaporean can own a car, all Singaporeans can enjoy a comfortable, convenient and comprehensive public transport service.

Dr Wang Kai Yuen (Bukit Timah): Sir, is the Minister implying that, with a more efficient public transportation system, the COE prices of private cars will come down, especially for luxury cars?

Mr Mah Bow Tan: Sir, what I am saying is that there is no way that we are able to curb the demand for motor cars just by taking the measures that people have suggested. We should be looking at the problem as a transportation problem. And, in this respect, by providing a better and higher level of public transport service, we are able to take a little bit of the pressure off from the demand for cars. But having said that, I do recognise that there is another element in this desire to own a car and this other aspect, I am afraid, cannot be addressed so easily. That I admit.

Mr Heng Chiang Meng (Cheng San GRC): Sir, I have got two supplementary questions. But before the question, I would like to beg your indulgence to thank the Minister for inviting my GPC to participate in this experiment?

The first question is: could the Minister explain why the experiment on pay-as-you-bid as well as the double-transfer method could not be carried out simultaneously because these things cannot be done with policies of too little too late? The second question is regarding the Minister's comments on public transport. In view of his comments, may I ask whether the Minister will consider giving a subsidy or grant to the public transport operators so that the quality of service of public transport can be at an extremely high level and yet very affordable to members of the general public?

Mr Mah Bow Tan: Mr Speaker, Sir, if I can take the second point first. As the Member is well aware, there is a subsidy on the infrastructure cost of providing for public transport services, whether it be MRT or buses. In the case of the MRT, we build the whole system. We provide the rolling stock. In the case of buses, we build interchanges, bus stations, bus stops, etc. This is already an investment in the public transport services without which the cost of providing those services would have been very much higher. The question of whether we should subsidise the direct operating cost, which I think is the thrust of his question, is an entirely different matter because the moment you start doing that, the whole question of whether services are provided where there is a need or not becomes very hazy, because there will always be demand for such services. If the Government is willing to provide subsidies for these services, where do we draw the line?

Sir, on the question of subsidies, yes, the Government will look into further feasibility studies in areas where a transport service, whether it be MRT, LRT, or bus service, is possible. If it is possible, and if it can cover the direct operating cost, then the Government is prepared to build that particular infrastructure. And I believe that is the way to make sure that transport services are provided and made affordable without at the same time creating a big black hole whereby we have to pour money in every year in order to make sure that those services keep on running.

Mr Heng Chiang Meng: How about the other question on the pay-as-you-bid system and double transfers?

Mr Mah Bow Tan: As I said, we are not convinced that the two systems will work. I think the only way to conduct an experiment of this nature is really to do it one at a time. Does he not think so? Because, otherwise, you will not be sure what is the actual effect of each of the two systems. We will try the first system first, and take our time with all the various inputs to see how we can conduct such an experiment. And if it does not work, then we can go on to the next one.

Dr Lau Teik Soon: Sir, Members will agree with me that the balloting system will achieve exactly the same objective as what the Government wants, that is, to restrict the number of cars on the road. But the Minister disagrees because he thinks that Singaporeans will get a windfall.

Mr Speaker: Dr Lau, ask your question. No speeches.

Dr Lau Teik Soon: If the Minister thinks that Singaporeans will get a windfall if a balloting system is introduced, why would he not consider restricting successful applicants so that the COEs will not become a speculative commodity, for example, by not allowing transfer until after five years and only allowing a person one COE every 10 years?

Mr Mah Bow Tan: Sir, in the first place, the moment we say that we are going to ballot, I think we are indirectly implying that we are going to make COEs available to the lucky applicants at a price which is lower than the market price. The moment that happens, then my point comes in. That you are actually giving a windfall profit to that lucky applicant. Is that better? Or is it better for us to collect the total amount accruing from COE revenue, put it into consolidated revenue, and use it for the public good? Which is better? Do we give it to a few lucky people? Or do we redistribute it to Singaporeans in general?

Dr Lau Teik Soon: Sir, the Minister has not answered my question. My question is that a successful applicant under the balloting system will not obtain the windfall if certain restrictions are applied, namely, by not allowing transfer after, say, five years and ensuring that a successful applicant cannot apply until after 10 years. Another question is, as I understand it, the COE system was never meant to raise revenue for Government. Why is it that the Government now says it needs the revenue?

Mr Mah Bow Tan: The Member is asking why we cannot implement a system and put rules and regulations into place in order to make sure that there is no windfall profit. For every rule and regulation that is in place, we will need people to go and enforce it. We are not dealing with a commodity, like HDB flats, where you can go around and ask people questions as to who is living there and who is not. We will have to set up a system whereby we would have to check every single car that goes on the road, who is driving it, and whether he is the rightful owner, etc. The more rules and regulations you put into place, the greater the bureaucracy that we would have to create, and the more money we would have to spend on people to enforce these rules and regulations. For what purpose? In order to benefit a few people who would otherwise have to buy a COE from the open market.

Mr Chiam See Tong (Potong Pasir): Sir, the Minister says that the pay-as-you-bid system and discouraging double transfers would be put on trial. How soon would they be implemented?

Mr Mah Bow Tan: I have asked the GPC for Communications to help my Ministry set up an experiment in order to conduct a trial on a basis whereby everybody will agree it is a fair trial. My Ministry is not convinced although there is a perception that it will make a difference. Let us discuss how we can conduct such an experiment, the result of which will convince either party whether he is right or wrong. In this respect, the views of Mr Chiam and other Members of this House will be most welcomed in drawing up this particular experiment. As far as the timing is concerned, it depends on how fast we can get these rules and regulations put into place.

Mr Chiam See Tong: Sir, the main concern of all motorists is to see that the COE prices will come down. I think that is the main concern of all motorists. Will the Minister consider a scheme - I believe it is already canvassed in the newspapers, and maybe an amendment of the pay-as-you-bid - where you take only the bids of the top 25% and the balance of the 75% you can take the strike price. Has the Ministry considered that scheme?

Mr Mah Bow Tan: Sir, my Ministry has considered that particular scheme and many, many more. The conclusion we have come to, I have already given to this House. But we are prepared to experiment on pay-as-you-bid, or variations thereof, after we have gone through the exercise on double transfers. So I would urge the Member to be patient.

Mr Heng Chiang Meng: Sir, in view of the Minister's comments on public transport which obviously is to get more people to use public transport instead of private transport, would the Minister now reconsider taxis, which are the closest to public transport, as a mode of public transport and remove the onerous requirement of COEs and the high duties on taxis?

Mr Mah Bow Tan: Sir, when you are talking about public transport, you are talking about transport which is used by many people and operated by a few, in other words, an efficient mode of transportation. I grant that taxis do provide a service. But I do not accept that taxis are an efficient mode of transport when compared to buses or, worse still, when compared to MRT. So there is a cost associated with providing this service and in providing the level of comfort that people are expecting from taxis. And I think this level of comfort and convenience must be reflected in the cost of providing that service and, ultimately, in the price of that service to the commuter.

Dr Wang Kai Yuen: Would the Minister comment on the reluctance of the Government in trying out the pay-as-you-bid? The public perceives that the Government is reluctant to do so because the Government would end up collecting less revenue. So would the Minister comment, please?

Mr Mah Bow Tan: There is absolutely no reluctance at all. As I have said in my answer, we are prepared to try it. But I would like to start off with double transfers because this is a natural follow up to the major adjustment that we made to the VQS system. When we removed transferability, the Member may recall, we had a big debate as to whether transferability was the cause of high COE prices. The Government said no. But many Members and many members of the public said yes, because of transferability, COE prices were high. We conducted an experiment. The experiment showed that it did not make any difference. But, nevertheless, we decided since we have already started it, let it be. Having done that, we now have things like double transfers, proxy bidding and so on. So if we are really going to start an experiment, it is natural for us to start off with double transfers. That is the reason why we have decided to start on that. I am prepared to move towards pay-as-you-bid after this. We can work with the GPC for Communications and any others to get an experiment in place very quickly. We can start fairly quickly within a few months.

Dr Wang Kai Yuen: Mr Speaker, may I respectfully ask the Minister to reverse the order of his experiment because, personally, I do not believe double transfers or the constraint on double transfers will help. But pay-as-you-bid may help.

Mr Mah Bow Tan: I thank the Member for his agreeing with the Minister on something. But I am afraid that there are many other people outside who seriously believe that it is because of double transfers that COE prices are high. Let us try double transfers first. We can then move on to pay-as-you-bid or anything else that we perceive to be the high cost of COE prices subsequently.

Mr Leong Horn Kee (Thomson GRC): Sir, I do support Dr Wang because I also believe that the pay-as-you-bid system will actually have a better effect on the prices of COE. But the question I want to ask of the Minister is this. I am pleased to hear the Minister say that he is going to improve other transport and road systems. Could he tell the House whether the total cost to be incurred each year on such improvements would more or less be matched by the collection that he will get from the COEs?

Mr Mah Bow Tan: Sir, I honestly do not have the figures at the moment. But if all the projects that we are looking into come into being, I have no doubt whatsoever that the total cost will be much higher than what we are collecting in any one year. Just to give you an example, for the first phase of the MRT system, we spent $5 billion. For the extension to Woodlands, we are spending another $2 billion. For the North-East sector line, probably more. If you take into account all the other projects - the LRT systems, the tunnels, the Kallang extension, the extension to Tuas and so on - conceivably, it will be much more than what we are collecting. But that is besides the point. The point is: are these projects worth doing? If they are, then we will do it.

Mr Chiam See Tong: Earlier on, the Minister said that his Ministry had studied these two schemes - the pay-as-you-bid scheme and discouraging double transfers - and came to the conclusion that they are not feasible. Can the Minister give reasons or tell us why the Ministry came to such a conclusion, when many members of the public think otherwise?

Mr Mah Bow Tan: I think I have answered this question many times before. But let me just go through the reasons once again. In the case of pay-as-you-bid, there is a belief that there are people bidding very high prices, much, much higher than the successful strike price. Every month when we release the results, we not only release the results of the successful strike price, the lowest successful bid price, we also release the results of all the other bid prices. And if you look at these results which are readily available in the ROV, you will find that people are bidding close to the successful strike price, plus or minus 10%. Therefore, if you are going to implement a pay-as-you-bid, even under the current system, the prices are already close to the successful bid price. They are clustering around the successful bid price.

How is it going to change under the pay-as-you-bid system? We have operated the COE bidding system for about four years now. In the beginning when people were getting used to the system, there were a few stray bids, very high bids, but that has changed. The tenderers know more or less what is the market price and what they are able to afford, and they are bidding accordingly. So even under the existing system, the bid prices are already fairly reflecting what is the market value of the COE. In a pay-as-you-bid system, it will not be any different. It will cluster around the successful bid price. The bids will be narrower and it will not make any difference. Why do I say that? It is already happening. As more and more people are bidding, as the people are getting more intelligent on the bidding system, they are already bidding in the way that we believe reflects the true market value. So when we introduce pay-as-you-bid, it is not going to make any difference. But there is only one way to prove that and when the time comes, we shall do so.

Mr Chiam See Tong: Sir, the Minister says that the people are now bidding close to the strike price. If you amend the pay-as-you-bid system, as canvassed in the newspapers, you have a system whereby you take the top 25% as the actual prices. Those who bid at that price must pay. Are you willing to amend the pay-as-you-bid system, instead of taking the actual prices of everybody who bids until they reach the strike price? You cream off the top 25%. Then people will understand the system and there will be two sets of bidders. Those who want to get the COE at the top will bid very high and those who want to try their luck in the 75% will bid at a much lower price. If the Minister is not clear, those who bid the highest price, for the first batch of 25% who bid, you take the actual price. Assuming you have got 4,000 COEs available. You take the first 1,000. Then the remainig 3,000, you go on your normal strike price basis. That will stop everybody from clustering around one strike price.

Mr Mah Bow Tan: Sir, I think Mr Chiam's suggestion is a hybrid of the current system and the pay-as-you-bid system, as it were, whereby everybody pays what he bids. It is neither here nor there. If we want to try it, I think we will try the pay-as-you-bid system, as the people have suggested, whereby you pay for whatever you bid.

Mr Chiam See Tong: Why is the Minister unwilling to try this system? I think it is a very workable system.

Mr Mah Bow Tan: We shall try after we have done the other one. We shall try.

Dr Kanwaljit Soin (Nominated Member): Sir, may I suggest to the Minister that the bidding price is so close to the strike price because most of the bidding is being done by the dealers who know the game, so to speak. I think it will be much more worth while, as some other Members have suggested, that you must combine the two systems - pay-as- you-bid and stopping the double transfers. Because if you just take one of them and you are not looking at the other one, then obviously it is not going to work, and you are going to come back to the House and say, "There I told you so."

Mr Speaker: What is your question, Dr Soin?

Dr Kanwaljit Soin: My question is: would the Minister consider instituting the two measures together, rather than one by one?

Mr Mah Bow Tan: Sir, I think when we conduct an experiment, we need to keep all variables constant except one and vary that one. I think this is what I was taught in school when I was doing experiments. If we are really interested in doing an experiment, let us do it this way. I am not against trying out the pay-as-you-bid or variations that have been proposed by Members of this House. The point is that if we want to have a fair result, let us do it one at a time. It will take a few months or a few weeks if we can speed it up to try and get some of the details worked out. And I think we can discuss some of these possibilities subsequently.

Dr Kanwaljit Soin: Sir, would the Minister agree that this is not a scientific experiment but one based on human behaviour? Would the Minister agree that using strict scientific criteria will not apply?

Mr Mah Bow Tan: I thought we were conducting an experiment as to how people would behave. If we change the rules, how would people behave. In this particular case, I am saying that it will not change anything because there is a certain value attached to this scarce commodity known as the COE. Whichever way we change it, whatever bidding system we put into place, people will finally come to the conclusion that this is the fair market value. This is what I am saying. I believe that this is what we are trying to prove or disprove so let us test the theory out.