Toward Certificate of Entitlement (COE) 2.0

Sir. Back in July this year, I uploaded a social media post that congratulated Senior Minister Lee Hsien Loong for receiving an honorary fellowship from the Economic Society of Singapore. The honour was the highest that the society, of which I am a council member, can grant. In my post I observed how I differed philosophically from Senior Minister Lee Hsien Loong.

These have to do with differing beliefs about the philosophy of public policy, especially as it concerns market efficiency and fair distribution. I used an example he raised in his dialogue, about the certificate of entitlement (COE) system and explained how, by relegating allocation decisions to an impersonal market, he implicitly accepted that such resulting allocations were fair, or as fair as they could potentially be. I noted that there could be a difference between COE allocations based on market prices, versus individual needs.

Sir, it is valuable, at the outset, to stress that I do not differ from the Government's position on prioritising public transport. Singapore is a dense, urban city, and like all such cities, public transportation is rightly the cornerstone of intra-city commuting. The Ministry of Transport (MOT) efforts should, rightly, be focused on expanding efficient, affordable and accessible public transport.

This includes addressing our over-congestion issues along certain Mass Rapid Transit (MRT) and Light Rail Transit (LRT) lines, including in Sengkang, the constituency that I represent and as discussed earlier today, and improving cross-island connectivity to reduce commute times, not downplaying the importance of the bus system as a last-mile solution given our hot and humid climate and ageing population, and a road system that is more inclusive of greener travel options.

I first spoke about Singapore's vehicle quota system (VQS), and the associated COEs, in a Workers' Party Motion filed in 2023, on the cost-of-living crisis. My speech at the time was focused on refining the system, as I understood it. Among the most important suggestions I offered was a supply-side change, to smooth the annual quota supply across a 10-year cycle, so that what is on offer every month would roughly be the same, and a demand-side one, to shift private hire car (PHC) bids to the Open Category (Cat) E. These would, in my view, contribute to containing COE price increases, as well as its fluctuation. Such moves are even more salient today, as this month's Cat A and B premia cleared eye-watering amounts of $119,000 and $136,000, respectively.

Since that time, the Ministry has rolled out the cut-and-fill system, which seeks to balance out the year-to-year variations in COE supply. While it has been implemented with less vigor than I would have personally preferred, in the debate at the time, then-Transport Minister Chee explained that the Government's position was based on the desire to minimise disamenities that would result from introducing too many cars on the road in the short-term. I am, nevertheless, gratified that at least some steps have been taken to manage the feast-and-famine nature of year-to-year COE pricing. I urge the Government to be more aggressive in its cutting from future supply and not be satisfied with mainly moving guaranteed de-registrations. I am also hopeful that the Government will eventually come round to moving PHCs into the quota for Cat E, as it already does with taxis, so that their commercially-minded bids do not inadvertently distort demand for non-commercial use.

In my speech, I also underscored how the VQS system resulted in our ability to enjoy uncongested streets, especially compared to other global cities, such as London or New York, which has, perhaps revealingly, since gone ahead with a road pricing scheme of their own. It would not be a mischaracterisation to state that I believe that the benefits of the system outweigh the costs and I do not favour its complete repeal.

Still, in my speech then, I also alluded to how, while the Government contends that private car ownership is a luxury rather than a need, there are certain groups for whom access to a car is much closer to a need than a luxury.

Today, I will build on that speech I delivered two years ago. I hope to propose another refinement, this time not to improve its efficiency per se, but its equity. To set the stage, I will first share my view on why certain groups are in greater need for private transport. I will then discuss how the COE system can be further refined to account for not just ability to pay but also access according to needs.

Sir, I believe three groups benefit disproportionately from private car ownership: parents of multiple young children; caregivers to elderly parents, especially if one or both suffer from chronic illness; and those who are disabled.

Any parent of a young child, of whom I am one, will grasp how game-changing it is to be able to directly ferry their kids from, say, one supplementary or tuition class to another, especially if their interests and talents differ, and instructors and schools are located all over the island. Those who have potentially given up their own careers to take care of a parent battling perhaps cancer will appreciate the flexibility that private transport affords as they bring their father or mother to their chemotherapy sessions. And it is a given that those who lack physical mobility due to a disability would benefit enormously from the independence afforded by a car.

Importantly, such groups are not unfamiliar to us. We have agencies, the Agency for Integrated Care and SG Enable, to coordinate elderly and disabled care, and an entire Ministry, the Ministry of Social and Family Development (MSF), whose raison d'être is to support families. We already have clear definitions for what constitutes a primary caregiver to seniors, who is a parent or guardian of a child as stipulated in the Young Persons Act and an MSF-accepted basis for those who are considered disabled in our social policies.

What else is common among these groups, however, is that their need for private transportation is more acute than that of the average citizen. They would, accordingly, benefit from financial support that would make a car more accessible to them. Notably, in one specific case, the disabled, we, and I cannot emphasise enough, already have in place a programme, the Disabled Persons Scheme, that grants a full waiver of the COE, if a disabled person is seeking a vehicle to commute to work.

One may argue that this lack of discrimination, if you will, is by design. Rather than provide targeted support toward car ownership, the Government currently provides generalised financial assistance, which can easily be applied toward offsetting the cost of a COE. Money is fungible and such generality allows each beneficiary household to decide for themselves whether the cash is better spent on transport, or any other need.

But yet, this Government has not, historically, shied away from choosing targeted support, so long as it felt that there could be potential spillover benefits from directing individual or corporate conduct. That is why our Community Development Council vouchers are targeted, because we wish to not only encourage household consumption via such transfers, but to also direct spending toward supporting our heartland businesses. That is why we grant businesses tax write-offs for qualifying research and development expenditures, so that they devote more resources toward growth-enhancing innovation. That is why Ministry of Education directs its financial assistance scheme for low-income households toward educational expenses, such as fees and books, to help educate the next generation and, hopefully, break free from that cycle of poverty.

By the same token, targeted support for car ownership can promote positive behaviours, such as children engaging in caregiving for their elderly father or mother, or time-strapped parents deciding to have their second or third child, or those with disabilities feeling sufficiently empowered to enter the workforce.

But it is more than that. Such targeted mechanisms can serve as a signal of the values we place, as a society, on cultural norms, such as filial piety, family bonding, and care for the weak and downtrodden. One may say that it is hard to adjudicate between different groups with needs and so it is better not to do so at all, by leaving it to the market. Or, you may say, like me, that we should not let the perfect be the enemy of the good and seek a way to help certain groups that we have already identified as more needy.

This is not the first time that this House will have debated the merits of enabling greater access to COE for certain groups. In the 14th Parliament, then-Non-Constituency Member of Parliament Hazel Poa mooted the idea of a COE credits allocation framework, where tradable credits replace the existing price-based system. Certain groups, families with young children, the elderly, the disabled, and those who have served National Service, would receive slightly larger allocations, in recognition of their greater needs, or greater contributions. To blunt the fiscal impact, she suggested a base fee, which is either determined by car engine capacity or as a share of the vehicle's open market value.

The proposal's intent is similar to what I will suggest today: to better level the playing field between the genuine needs of certain households for a private vehicle, versus their ability to pay for a COE. It bridges the gap between need and affordability. In that regard, the spirit of the idea is sound.

However, Ms Hazel Poa's proposal relies on a non-price system for the initial allocation, before subsequently subjecting these credits to market exchange, which introduces additional wrinkles of complexity and opacity to an otherwise straightforward auction-based pricing system.

The Government’s response to the proposal raised similar concerns about how it is complicated and runs the risk of inefficient pricing. But then-Senior Minister of State for Transport Amy Khor also trotted out an old trope, that having the Government dictate differential credit allocations would be excessively subjective. Senior Minister Lee, in his address, had made a similar point, that the market was the most fair and efficient way.

While I agree that the Vickrey auction, on which the COE is based, is indeed an efficient mechanism, let us not pretend that it is actually fair or neutral. Allowing prices to be dictated by the market simply abstracts from need, by allowing money to adjudicate between competing demands. Those with more money will automatically be able to bid more, to secure the limited resource. It is only fair if we believe that the distribution of income and wealth in society is also always fair.

What might be a simple way forward? I will propose what I believe is a cleaner approach toward incorporating the needs of certain groups, which, if I may remind this House, we have already accepted are worth supporting, within the existing price-based COE system. This idea is discounts.

To be concrete, we may consider a variant of the following.

For the disabled: we offer a 100% discount on the COE. This is a full waiver, which is already in place, in the form of the Disabled Persons Scheme. For parents of two or more children, of which at least two must be below 14 years: a 10% discount for each additional child beyond the first.

Hence, a family of two children aged four and seven would receive a 10% discount, while one with three children aged between two and 13 would receive a 20% discount. A family with a five- and 15-year-old would not receive any discount, nor would single-child families. For primary caregivers of either two parents above 80 years of age, or one parent who suffers from a chronic illness that is in need of regular medical checkups, all of whom must live within the same household: a 10% discount.

The discount would apply at the time of purchase. COE prices would still follow market value thereafter. Hence, should the vehicle subsequently be sold, the benefits would remain with the family that qualified for the discount in the first place. While some have speculated, based on the experience of the electric vehicle (EV) subsidy, that rebates might simply pass on into higher COE prices, this has not been definitively proven. Perhaps more important, the much smaller segment of potential buyers which would qualify for such discounts makes it highly unlikely that they will materially move markets.

To ensure that this system caters to genuine needs while keeping the system fiscally sound, we can accompany these with some form of means testing. For example, we may apply the discount apply to families that earn below the median income threshold, or instead, we may exclude the top quintile of earners from this scheme.

Sir, although I focused on the COE, I recognise that this is, ultimately, an imperfect proxy for road usage, which is the scarce resource that is actually being rationed. The Government is moving towards a system where the costs of car ownership will be de-emphasised while that of road usage would come to the fore. This is distance-based charging, which has already been foreshadowed by the roll-out of ERP 2.0.

Should COE prices fall alongside distance-based charges, it will certainly address some concerns by some of the groups that I mentioned. But road pricing will bring its own set of fairness considerations. After all, those living further away, such as estates in Punggol or Sengkang, will suddenly be subject to a higher distance charge just to get to work due to the unanticipated change in policy.

This is a debate for another day, but I hope that the thoughts I offer today already hint at the importance of not just taking efficiency into consideration while evaluating who has the right to use our roads but that the equity considerations will come to the fore as well.