PETROL DUTY AND RISING UTILITY BILLS

Mr Leong Horn Kee asked the Minister for Finance whether he will impose a cap, in absolute dollar terms, on the ad valorem duty imposed on petrol prices which is currently pegged on percentage basis, so as to alleviate the impact of rising oil prices on the business and consumer sectors.

Mr Ong Ah Heng asked the Minister for Finance whether he will lower the ad valorem duty on fuel oil to mitigate the effects of a rise in oil prices.

Mr Ong Ah Heng asked the Minister for Finance, in view of the increase in oil prices, whether the utilities rebates for low-income families will be enhanced.

Mr Low Thia Khiang asked the Minister for Finance whether the Government will take measures to mitigate the rising utilities bill to reduce the cost of living pressure on households.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, may I have your permission to take Question Nos. 3 to 6 together?

Mr Speaker: Yes.

Dr Richard Hu Tsu Tau: Mr Ong and Mr Leong have asked that the Government lower petrol duty to mitigate the cost pressures on the economy, by lowering the ad valorem rate or placing a cap on petrol duty.

Let me first point out that at present customs duty is imposed only on petrol. There is no tax on diesel fuel or jet fuel. There is also no tax on fuel used for the generation of electricity. The impact of customs duty on the cost of public transportation, commercial traffic and household electricity bills is thus very limited. Our petrol tax is used primarily as a traffic management tool. It amounted to $466 million in FY99.

I do not propose to lower the duty on petrol or put a cap on it. For a typical 1.6 litre car in Singapore, even at present prices, petrol duties paid as a percentage of total operating cost of the car is only 5%. Our pump prices and petrol duty are not excessive compared with those of many other countries. For example, in the UK, the price per litre of petrol is about S$2.22. In South Korea it is S$1.98, in France S$1.97. In Singapore the average price is about S$1.50. In Malaysia and Indonesia the retail prices of petrol are lower, but that is because of heavy subsidies by the governments as they are oil-producing countries.

As for petrol duty, at 40% ad valorem, Singapore's rate is lower than all the European countries and Australia. Only the US is lower2. Pump prices of petrol

2 Countries Tax Rate on Petrol (% of retail price) USA 22 UK 74 France 67 Germany 65 Holland 64 Italy 63 Belgium 63 Spain 58 Denmark 43 Australia 47 Singapore 40 (pre-GST) Thailand 29 Source: MAS Note and diesel oil also do not fluctuate as widely as crude oil prices. In fact, when crude oil prices increased by 26% from US$25 in December last year to US$32 in September this year, average pump prices of petrol increased by only 15%, from S$1.23 to S$1.42 per litre.

We did not place a cap on petrol duty on previous occasions, when oil prices rose sharply, and were in real terms much higher than today. I therefore do not see a need to do so now.

Mr Ong and Mr Low have also asked the Government to consider measures to help households cope with rising utility bills.

In the last sitting of Parliament, Minister George Yeo gave a full explanation of the measures the Government has taken. To help lower-income households cope with the changes, the Government has granted them rebates on their utility bills. This year, the rebate is $200 for 1- to 3-room HDB flats and $100 for 4-room flats. The amount will be credited to their utilities accounts in mid-October this year. For 1- to 3-room HDB households, the $200 rebate is more than the average annual increase in utility bills. For 4-room HDB households, the $100 rebate is about half the average increase in utility bills. In addition the Government has also given service and conservancy charge rebates for these flats.

These rebates help the lower income households to cope with price increases. Overall, despite the higher oil and electricity prices, CPI inflation will be less than 2% this year, including for the lower income households. Therefore, while the price increases are not welcome, they should not cause significant hardship or disruption to households.

We should see the current oil price levels in perspective, and should not over-react to them. As a price taker who imports all our oil, we cannot shield ourselves from global fluctuations in oil prices. Nor should we subsidise the consumption of oil or electricity, not even by lower income households. But we will help them in other ways. If the economy continues to perform well, in future budgets we will again be in a position to consider further rebates for lower income households.

Mr Low Thia Khiang (Hougang): Sir, I would like to know from the Minister for Finance whether in calculating the rebates on utility bills he would take into account the average utility bill size, besides the recent fuel price increase, the water conservation tax as well as the increase in water-borne fee. These add up to quite a substantial increase compared to the old charges. How is the average bill size arrived at, and what is the average?

Dr Richard Hu Tsu Tau: I do not have the detailed figures but I am assuming that the figures I gave Members for the utility charges would include the size of utility bills borne by the various family sizes. So they should account for all the changes that take place. But if the Member wishes, I will send him the details of the breakdown.

Mr Low Thia Khiang: Based on my rough calculation on the old charges, a 3-room HDB household has an average utility bill of about $80 to $90. Currently, it is being charged $127. Does the Minister for Finance think that the current rebate given to lower income households is sufficient?

Dr Richard Hu Tsu Tau: Why do you not let me have your calculation? We will make a reconciliation with our figures?

Mr Jeyaretnam: May I come back to my question, Mr Speaker, which was asked earlier? As I understand the Minister, the duty on petrol is to control the number of cars on the road. May I ask whether this has had an impact and whether there has been a reduction in the number of vehicles on the road as a result of the duty?

Dr Richard Hu Tsu Tau: It has a contributory effect. We have a package of measures to regulate the growth and usage of cars in Singapore. The most important is the capital cost, which includes import duties, additional registration fee and COE. So the capital cost of a car is substantial. As I have said earlier, petrol duty accounts for only 5% of the operating cost of a typical 1.6 litre car. It is therefore relatively insignificant. For example, a 1.6 litre Toyota Corolla car could cost $96,000. The capital charge would therefore be large relative to the cost of petrol duty.

Mr Jeyaretnam: May I ask whether if that is the position. Why is it not considered feasible to reduce the petrol tax? It seems that it does not really have any great effect on controlling the number of cars on the road.

Dr Richard Hu Tsu Tau: I did not say that it does not have any impact. The capital cost of cars influences the increase in car population. But the price of petrol helps to regulate the use of cars which are already in the market. The high cost of cars influences the increase in the car population whereas the cost of petrol influences the usage of cars.