Friday, May 18, 2012

COE system is broken, has no place in S'pore

After two decades, the Certificate of Entitlement system has proven to be a blunt tool that is nowhere near the ideal of economic distribution of limited resources. Neither has it discouraged vehicle population growth.

Letter from Chua Yao Kun

After two decades, we can establish the relationship of COE prices to buyer behaviour.

When COE prices are high, the cost of replacement is significantly higher than the cost of maintenance and one would keep the old vehicle on the road longer. This contributes to more pollution.

When prices are low, vehicles of relatively young age are scrapped to recover the COE acquired previously at high cost. This is unnecessary cash outflow for Singapore.

Even if a vehicle is not scrapped, the owner is likely to take advantage of the low prevailing quota premium ahead of COE price increases.

From this observation, one can see that the COE system has more effect on the average age of the vehicle population than on controlling the car population.

Instead of positive social and economic benefits, COEs have contributed to two negative social phenomena.

Firstly, vehicle ownership is increasingly concentrated in the hands of the rich rather than being allocated to activities that promote economic value.

Having different COE categories does not isolate different user groups.

As prices in Category B and the Open Category go higher, some prospective buyers without enough financial power are competing in Category A instead, going by the increased number of Mercedes, Volvo and other luxury makes in this category.

As Category A prices rise, some prospective buyers are being squeezed out and turning to commercial vehicles for their personal transport, going by the sofas I have seen in the back of those small vans.

In a nutshell, the different categories are cosmetic. That is why the COE prices rise and fall in lockstep.

Businesses that need transport are the ones hardest hit. Regardless of the economic and competitive environment, they are passive price takers of the high COE price, while the rich throw their excess cash around.

There is no economic redistribution of resources.

Secondly, COEs drive inflation. Taxi companies, logistics companies and any company involved in moving people and goods would be forced to transfer their escalated costs to consumers, many of whom are not car owners.

A quota on vehicle population does not need a highest bidder system to administer.

While the COE system is an attractive avenue to generate cash, society pays a hefty price.

It is a broken system that has no place in Singapore today, especially when we are trying to promote an inclusive society and arrest inflation.