Toward COE 2.0
A social media post that garnered attention
Back in July this year, I uploaded a social media post that congratulated SM Lee for receiving an honorary fellowship from the Economic Society of Singapore. The honor 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 SM Lee. 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 dialog—about the certificate of entitlement (COE) system—and explained how, by relegating allocation decisions to the impersonal market, he had implicitly accepted that such resulting allocations were fair (or as fair as they could be). I noted that there could be a difference between COE allocations based on market prices, versus individual needs.
Accessible and affordable public transport as a first priority
It is valuable, at the outset, to stress that I do not differ from the government’s position on prioritizing public transport. Singapore is a dense, urban city, and like all such cities, public transportation is rightly the cornerstone of intra-city commuting. Ministry of Transport (MoT) efforts should, rightly, be focused on expanding efficient, affordable and accessible public transport.
This includes addressing our overcongestion issues along certain MRT and LRT lines—including in Sengkang, the constituency that I represent—improving cross-island connectivity to reduce commute times, not downplaying the importance of the bus system as a last-mile solution given our hot, humid climate and aging population, and a road system that is more inclusive of greener travel modalities.
Refining the COE system to limit price rises and volatility
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 the 10-year cycle, so that what was 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 E, even as successful ones would draw down from the quota in either Cat A or B. These would, in my view, contribute to containing COE price increases, and 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 of Transport (MOT) 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-MOT Minister Chee explained the government’s position for why, based on a desire to minimize disamenities that would result from introducing too many cars on the road—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 deregistrations. 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 distort demand for noncommercial 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 mischaracterization to state that I believe that the benefits of the system outweigh the costs, and I do not favor its complete repeal.
Nevertheless, in my speech, 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 it is a luxury.
A COE system that better accommodates needs
Today, I wish to build on that speech I delivered two years ago. I hope to propose another refinement, this time not to improve its efficiency, but its equity. To set the stage, I will first share my view on why certain groups are in greater need of 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.
Groups that benefit disproportionately from car ownership
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 which I am one—will grasp how gamechanging it is to be able to directly ferry their kids from 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 cancer will appreciate the flexibility of more easily bringing 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 (AIC) 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 who is a primary caregiver to seniors, who is a parent or guardian of a children as stipulated in the Young Person’s 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 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 already have in place a scheme, the Disabled Persons Scheme, that grants a full waiver of COE, if a disabled person is seeking a vehicle to commute to work.
Now, one may argue that this is by design. Rather than provide targeted support toward car ownership, the government currently provides generalized 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 better decide whether the cash is better spent on transport, or any other need.
But 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’s why our CDC 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’s why we grant businesses tax writeoffs for qualifying R&D expenditures, so that they devote more resources toward growth-enhancing innovation. That’s why MOE 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 behaviors, 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 formal 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 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.
Alternative proposals
This isn’t 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-NCMP 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, Miss Poa’s proposal relies on a nonprice 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-SMS for Transport Amy Khor also trotted out an old trope, that having the government dictate differential credit allocations would be excessively subjective. SM Lee 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 always fair.
My proposal
What might be a way forward? I propose a simpler, 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: discounts.
To be concrete, we may consider a variant of the following:
- For the disabled: we offer a 100 percent 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 2 or more children, of which at least 2 must be below 14 years: a 10 percent discount for each additional child beyond the first. Hence, a family of 2 children aged 4 and 7 would receive a 10 percent discount, while one with 3 children aged between 2 and 13 would receive a 20 percent discount. A family with a 5 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 percent discount.
The discount would apply at the time of purchase. COE prices would still follow market value thereafter; hence, should the vehicle be subsequently 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 EV subsidy, that rebates might simply pass into higher COE prices, this has not been proven. Perhaps more important, the much smaller segment of the potential buyers that would qualify for such discounts makes it unlikely that they materially move markets.
To ensure that this system caters to genuine needs while keeping the system fiscally sound, we can accompany these with means testing. For example, we may apply the discount apply to families that earn below the median income threshold, or exclude the top quintile of earners from this scheme.
Conclusion
Although I have focused on the COE, I recognize that this is an imperfect proxy for road usage, which is scarce resource that is actually being rationed. The government is moving toward a system where the costs of car ownership will be deemphasized, while that of road usage would come to the fore. This is distance-based charging, which has already been foreshadowed by the rollout of ERP 2.0.
Should COE prices fall alongside distance-based charges, it will certainly access concerns by some of the groups I mention. But road pricing will bring its own set of fairness concerns. After all, those living further away—such as in estates such as Sengkang or Punggol—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 when evaluating who has the right to use our roads, but equity as well.
