CERTIFICATE OF ENTITLEMENTS (Review of categorisation)

Dr Jennifer Lee asked the Minister for Communications and Information Technology, in view of the trend that has emerged from the converging of Certificate of Entitlement prices, if his Ministry will reconsider and review the categorisation of COEs, in order to preserve and support a system in which car buyers will have more choices and the ability to opt for smaller capacity cars.

The Minister of State for Communications and Information Technology (Dr John Chen Seow Phun) (for the Minister for Communications and Information Technology): Mr Speaker, Sir, can I ask the Clerk of Parliament to distribute the handout? [Copies of handout distributed to hon. Members].

Sir, the Certificate of Entitlement (COE) categories for small and medium-sized cars were merged into one category, Category A, in May 1999, following a review by the Government Parliamentary Committee. The Committee had noted that ideally, there should only be one category of COEs, and recommended the merger of the two COE categories to also address the concern that the COE quota for small cars was declining while their COE prices were not greatly different from those for medium-sized cars.

The merger of the two categories to form a larger quota has helped to stabilise COE prices. This does not however mean that the COE for smaller cars will be cheaper than that for bigger cars, because price is a function of demand and supply. Latest prices for Category B COEs for cars more than 1,600 cc against that for Category A COEs for cars up to 1,600 cc bear this out. The COE price of Category A is close to and sometimes higher than that of Category B. This is in spite of the fact that the monthly quota for Category A, as it stands now, is 2,617, which is more than twice the size of the quota for Category B, which is 1,153.

Sir, combining the former COE Categories 1 and 2 into one category for all cars with engine capacity up to 1,600 cc has given car buyers greater flexibility to decide what cars to buy based on affordability. The fact that more choose to buy at the higher cc end of this category reflects consumer preference for such cars. This is notwithstanding the fact that there are other cheaper, smaller cc models in the category which are more affordable. As a matter of fact, the prices of some small cars have not changed much, compared to the first quarter of 1999 before the two COE categories were merged. I have distributed to Members some data to show the comparison of car prices to illustrate what I mean. If you look at Table 1, generally, the prices for small cars are lower than prices for medium-sized cars. When you look at Table 3, comparing the car prices, say, for small cars before and after the merger, you can see that the changes are not much. Some have gone up, some have come down. The reality is that car buyers have been able to benefit from the merger of the two categories and they are exercising their preferred decision. More of them appear to be opting for the bigger, though slightly more expensive models, rather than the cheapest models within the same COE category.

On the part of motor dealers, they have responded to the change in demand pattern by adjusting the range and numbers of car models they import for the Singapore market. The decision to bring in fewer small car models is a reflection of the shrinking demand for smaller cars, even though such cars are still, as I have said earlier, generally cheaper and hence more affordable than the bigger cars.

Owning a car is not a basic need. There is no reason why Government should intervene and arbitrarily decide on the market mix of the car population in Singapore. We should not influence the type of cars buyers should choose. It is best left to car buyers how much they are willing to pay for a COE and what type of cars they want to purchase. From the land transport point of view, all cars, regardless of the size of their engine capacity, occupy the same amount of road space when moving. Hence, traffic engineers have assigned all cars the same Passenger Car Unit (PCU) rating of 1. It is not the intent of the COE scheme to address the social issue of price progressivity. This issue is addressed through the Additional Registration Fee (ARF) and customs duty which are pegged to the Open Market Value (OMV) of the vehicle, and the road tax structure which is based on the engine capacity.

Looking at the current COE trends, some have expressed the view that Government should move towards merging all car categories into one broad category. The COE categories were restructured just over a year ago. We will be introducing open bidding for COEs later this year. It is best that we let the system stabilise and observe the price trends of COEs and consumer preferences. Hence, the Government has no plans at this stage to merge the two car categories into a single category.

Dr Jennifer Lee (Nominated Member): Sir, I would just simply like to ask the Minister of State that, albeit that cars are not a basic need, they do form a very real part of the aspirations of many Singaporeans and, therefore, the LTA, as it further studies refinements and hopefully enhancements from the public point of view, takes due consideration that it tries not to contribute more to the very real and growing feeling among ordinary Singaporeans that more and more things are getting out of reach of the little guy and of young people starting out in their careers.

Dr John Chen Seow Phun: Sir, we understand that the aspiration to own cars is there and, of course, subject to the congestion objective, the Government will try to help Singaporeans fulfill their aspiration. As I said, at the moment, there is progressivity also in the ARF and the road tax, and the COE is not intended to accentuate that progressivity. But what we can do is wherever we can, subject to congestion level, we will try to give more COEs and that will lower the COE prices.