Saturday 1 June 2013

Making transport socially equitable

A surcharge for a second car? Why not? Equity and fairness are important considerations in land transport policy.
By Christopher Tan, The Straits Times, 30 May 2013

THE concept of fairness in the land transport arena has come under intense scrutiny recently.

There has been debate on whether there should be an element of social equity in the vehicle quota system - in which potential car owners bid for a certificate of entitlement (COE) to own a car.

Not too long ago, a state-funded $1.1 billion plan to subsidise bus commuters caused a small furore when it was seen as an indirect - and unfair - subsidy for transport companies.

The biggest controversy surrounds Transport Minister Lui Tuck Yew's proposal for a surcharge on folks who buy more than one car.

It is actually not as radical as it sounds, and not much different from making high-income earners pay more taxes. Nor is it different from recent measures that discourage multiple property purchases, where those buying their second or subsequent properties are subject to tiered additional stamp duties.

In land-scarce Singapore, it is not difficult to understand the need for such measures for cars and properties - to curb speculation and excessive consumption. The additional taxes collected can then be used to benefit society at large.

Equity in public policy is not a new phenomenon. Fairness and transparency in social policies have been the bedrock of the People's Action Party (PAP) government.

In his book, Economics Of Modernisation, the late Dr Goh Keng Swee emphasised the importance of impartial policies: "Any hint of a group enjoying special privileges usually results in a public outcry. This is as it should be in a healthy democracy."

So it is not strange to expect an element of equity in the vehicle quota system even if the COE auction is itself market-driven.

That is precisely why the system comes with different categories, so that bidders with greater means will not overwhelm those with less. The system originally had four car categories according to engine size, to "shield" those who could afford only cars with smaller engines from the bidding power of those who wanted larger engines.

When the four categories were merged into two in 1999, the system lost some social equity. Whatever equity remained went out the window when premium brands such as Mercedes-Benz, BMW, Audi and Volvo started bringing in sub-1,600cc models in 2009.

Buyers of these models tended to be more affluent and could outbid those who could afford only mass-market models from the likes of Toyota, Honda and Hyundai. Sellers also enjoyed fatter margins. Result: Budget-conscious families could not afford a first car, losing out partly to affluent households bidding for a second or third Audi for their children.

Now, Mr Lui is looking to reformat the system to re-inject some equity into it.

Detractors who say that this is muddying the auction system's market "purity" or veering into populist politics forget that the vehicle quota system has always been anchored on fairness. If it was not, there would not have been any categorisation and all vehicle buyers would bid against one another. In such a system, those most able and willing to pay get the COE - motorcyclists and pick-up buyers be damned.

Such a system is "pure" from a market point of view but lacks equity altogether. Hence any move to re-introduce an element of equity into the vehicle quota system is welcome and in line with the Government's political values. In fact, equity should be a guiding principle for all land transport policies. And the place to start may well be the ongoing public transport fare review.

For decades, we have held fast to a fare structure that sets out to be fair to both commuters and operators, but ends up being a little inequitable to both. On the one hand, low-income households - which are entirely dependent on public transport - are devoting more of their monthly expenditure on commutes. And on the other, bus operators are expected to dish out concessions as well as invest in operating assets even as their profitability hangs in the balance. Meanwhile, service standards have been slipping.

Which explains why the Government decided last year to use $1.1 billion in tax revenue to buy 550 additional buses and finance their operations for 10 years. It was the first attempt of its kind to help commuters by expanding bus capacity while new rail lines are being built.

Ironically, it was seen by many as the state giving operators a handout, even though the companies do not get to keep revenue generated by the fleet expansion.

There would have been no such ambiguity if Singapore had in place London's model, where the well-being of commuters is the responsibility of both state and private enterprises - and where the roles are clearly delineated.

Singapore is taking tentative steps towards this way of doing things. It has put a Jurong West-to- city bus route up for tender - the way London does it. The successful company is paid the sum it bid for, and the Government keeps fare revenue - which it could use for subsidies and concessions as it sees fit.

Meanwhile, the fare review committee headed by Mr Richard Magnus has also been tasked to look at the issue of affordability more closely.

Mr Magnus says he is looking to cap the public transport expenditure of average-income individuals who commute a lot. Concessions for polytechnic students and the disabled are also being considered.

Presumably, these things are possible only if "normal" adult fares went up significantly, state subsidies kicked in, or both.

In other words, they are possible if Singapore had in place something similar to the London bus operating model, which is also used in Stockholm, Copenhagen, Seoul, Curitiba, Bogota and Perth.

In London, bus commuters pay a flat £2.40 (S$4.60) per ride if they pay cash - hefty by many standards. But card payments are much lower (£1.40), and many commuters travel for free. They include those over 60 years, the disabled, and children up to 15. Those between 16 and 18 pay concessionary rates. Card users also enjoy a daily cap of £4.40 regardless of the number of trips they make.

Season fare cards (monthly or yearly) are also substantially cheaper.

At first, the fairness of such a structure is not apparent. But if you think about it harder, this system benefits the frequent commuter. Those who need to travel more are typically poorer people, who tend to live farther from the city centre, who need to travel longer distances for work, or who hold two jobs.

Using tax dollars to subsidise public transport - a common practice worldwide - would not be unfair in Singapore, as only the wealthier segment pays income tax here.

It is also only fair that those who can afford cars share the responsibility of keeping the roads as congestion-free as possible - something which public transport does.


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