Pergamon

PII: S0264-2751(97)10004-X

Cities, Vol. 15, No. 1, pp. 27–39, 1998  1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0264-2751/98 $19.00 + 0.00

A unique demand management instrument in urban transport: the vehicle quota system in Singapore Foo Tuan Seik* School of Building and Real Estate, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260

In land-scarce Singapore, the key transport policy is to alleviate traffic congestion. In the late 1980s, vehicle taxes and usage restraints proved ineffective in curbing the fast growth of the vehicle population; hence the rationale for a policy instrument called the Vehicle Quota System (VQS). This paper discusses the operational aspects of the VQS and explains how various implementation problems have been addressed. It is found that the VQS has resulted in effective control of the vehicle population but has given rise to high car prices which are not affordable by a substantial proportion of Singaporean households.  1998 Elsevier Science Ltd. All rights reserved Keywords: urban transport, demand management, Vehicle Quota System, Singapore

Introduction

Singapore’s land transport policy

Singapore is an island city-state which occupies a land area of 647.5 km2. With an estimated population of 2.99 million in 1995, it is a densely populated city with over 4600 persons km⫺2, making it one of the world’s most densely populated urban areas. The island, which lies 137 km north of the equator, faces a severe constraint of land scarcity. Its built-up area in 1995 totalled 319.3 km2, which is a huge 49.3% of its total land area; road infrastructure occupied some 11.0% of the total land area. Despite its physical constraints, Singapore has climbed rapidly from being a developing country with a GNP per capita income of S$2761 (US$1972)1 in 1971 to a newly industrialising economy in 1995 with an estimated indigenous GNP per capita income of S$31 432 (US$22 451), a figure which ranks highly among Asian countries. In 1995, the transport and communications sector of the economy contributed a significant 11.7% of GDP, employed some 183 300 people and absorbed 21.3% of annual consumer expenditure.

Singapore has excellent communication links with the outside world by air and sea routes but the value of its strategic location as a regional centre could be severely compromised should traffic congestion problems occur within the island. In the early 1970s, the first comprehensive transportation study was completed by Wilber Smith and Associates (1974). The study highlighted the danger of uncontrolled private car ownership and usage in the context of Singapore’s limited land resources. This was taken seriously by the government and it shaped the key element of Singapore’s land transport policy into one of reducing traffic congestion. The alleviation of traffic congestion was seen as invaluable in helping make Singapore an attractive destination for foreign investment, trade and tourism. The main land transport strategies which were formulated on the basis of this policy, and which have remained until today, are: (a) integrated and coordinated land use and transportation planning so as to minimise travel demand and maximise use of road space; (b) expanding the road network, maximising its capacity and providing accessibility to all parts of the city;

*Tel.: (65) 772-6901; Fax (65) 775-5502. 1 The currency exchange rate used is S$1 = US$0.72 or US$1 = S$1.40.

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A unique demand management instrument in urban transport: F T Seik

(c) improving the efficiency of the public transport system and integrating rail, bus and taxi services; (d) effective travel demand management by managing vehicle ownership and usage; (e) improving traffic management measures.

The next increase in taxes was imposed in 1980 when the ARF rate was raised to 150% with increases in annual road tax rates as well. In 1990, following the initiation of the Vehicle Quota System (VQS), the ARF rate was slightly decreased to 160% from 175% in 1988 and later to 150% in 1991 in order to ease the burden of motorists who now had to make extra payments on Certificates of Entitlement (COE), another vehicle ownership restraint instrument. The mechanics of the VQS will be discussed in a later section.

The management and administration of the transport sector in Singapore which, prior to 1995, was fragmented and handled by several transport-related agencies, is now handled by the Land Transport Authority (LTA), an amalgamation of most of these agencies.

Rationale for the Vehicle Quota System (VQS)

Early policy on vehicle ownership

Level of motorisation Table 2 shows that from 1961 to 1970, private car population in Singapore doubled from 70 108 to 142 568. In the same period, public roads increased in length by merely 35% from 1437 km to 1938 km, of which only 240 km (12%) were major arterial roads and expressways. The traffic density in terms of number of vehicles per kilometer of public roads rose from 82.1 to 149.9. By 1975, cars represented half of Singapore’s total vehicle population and were owned at a rate of one per 16 people. Traffic congestion problems started to appear with increasing frequency in Singapore’s CBD. Average travel speed slowed down to around 20 km h⫺1 (Toh, 1992, p. 290). Apart from tightening price restraints on vehicle ownership such as by raising taxes on vehicles, the government had to turn to restraints on vehicle usage as well.

In the late 1960s, Singapore’s early policy on vehicle ownership was one of restraining vehicle ownership via taxes. A series of taxes are added to the vehicles’ open market value (OMV) which is essentially the manufacturer’s price together with insurance and freight costs. The types of upfront vehicle taxes and the rates as first imposed in 1968 (in parentheses) were: import duty (30% of the OMV); registration fee (S$15); and additional registration fee (ARF) (15% of the OMV). Vehicle owners also have to pay an annual road tax which increases with the car’s engine capacity. In 1968 this was a flat S$0.10 cc⫺1 engine capacity. Table 1 shows the chronological development of tax rates imposed on vehicles since 1968. Large increases in registration fee, ARF and annual road tax were imposed in December 1975 to curb vehicle purchases, at a time when traffic congestion problems started to surface in the city’s Central Business District (CBD). For example, the ARF rate was increased from 55% in 1974 to 100% in 1975. As high capital costs could lead to vehicles being kept longer, which in turn could lead to deterioration in roadworthiness, air pollution and congestion problems, the preferential ARF (PARF) scheme was introduced at the same time. The scheme provides incentives such as discounts and rebates on the ARF for the replacement of old vehicles.

Usage restraints The government introduced a usage restraint measure called the Area Licensing Scheme (ALS) in June 1975. Area licensing is a simple form of road pricing whereby a permit must be purchased to take a vehicle into a designated “restricted zone” during peak traffic periods. It is used together with more conventional usage restraint measures such as high petrol taxes and high parking charges in the CBD.

Table 1 Chronological development of taxes on vehicles since 1968 (starting from month/year given) Jan 1968 Import duty (% of 30 OMV) Registration fee (S$) 15 ARF (% of OMV) 15 Annual ⫺1000 ⫺1001 ⫺1601 ⫺2001 ⫺3001

road tax (cents per cc) cc and below 10 to 1600 cc 10 to 2000 cc 10 to 3000 cc 10 cc and above 10

Oct 1972

Jan 1974

Dec 1975

Feb 1980

Oct 1983

Oct 1984

Nov 1988

Feb 1990

Feb 1991

45

45

45

45

45

45

45

45

45

15 25

15 55

15 100

1000 150

1000 175

1000 175

1000 175

1000 160

1000 150

10 12 15 20 30

14 15 22 25 60

35 40 45 50 80

40 50 60 70 100

52 65 78 91 130

60 75 90 105 150

70 90 105 125 175

70 90 105 125 175

70 90 105 125 175

Note: As from 1975, company cars pay double these rates

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A unique demand management instrument in urban transport: F T Seik Table 2 Vehicle population in Singapore and related indicators Year

Private carsa

1961 1970 1975c 1980 1985 1990 1995

70 108 142 568 142 045 152 574 221 279 271 174 342 245

(⫺50.6)b (0.4) (0.0) (7.4) (55.8) (90.9) (140.9)

Other vehicles

Total number of vehicles

47 828 147 855 138 333 218 767 265 481 271 178 299 884

117 936 290 423 280 378 371 341 486 760 542 352 642 129

(⫺65.4) (6.9) (0.0) (58.1) (91.9) (96.0) (116.8)

(⫺57.9) (3.6) (0.0) (32.4) (73.6) (93.4) (129.0)

Vehicles per km of road 82.1 149.9 129.0 157.6 184.0 188.2 210.1

No. of persons per car 24.3 14.6 15.8 15.0 11.2 10.0 8.7

Source: Department of Statistics (various years) Notes: a Include private cars and company cars b Figures in parentheses indicate percentage increases over 1975 figures c From 1974, records on motor vehicles were computerised. Pre-1974 figures such as the 1970 figures were found to be slightly over-estimated, thus accounting for the drop in the number of vehicles in 1975 compared with 1970

Under the 1975 set of charges, a daily license of S$3 (or S$60 month⫺1) had to be purchased for a vehicle to enter the restricted zone from 07:30 h to 10:15 h on weekdays i.e. from Mondays to Saturdays.2 No charges need to be paid for off-peak hours, Sundays and other public holidays. The boundaries of the ALS are located within the Central Area of Singapore (which contained the CBD) and the cordon covers an area of over 7 km2, putting almost all of the roads in the Central Area under the ALS’s jurisdiction. Soon after its introduction, the scheme was estimated to have reduced rush-hour traffic by 45%, effected a 20% increase in traffic speeds and a 25% reduction in accidents (UNCHS, 1995, p. 35). A survey undertaken in 1991 found that the number of vehicles entering the restricted zone during the morning peak period was 46 000 compared with over 74 000 in March 1975, just before the ALS was implemented (Yap, 1993, p. 41). This is remarkable considering Singapore’s 93.4% growth in vehicle population and 45.9% rise in traffic density during the 1975–1990 period (Table 2). Another study by Tan (1991, p. 1) showed that an average travelling speed of 30 km h⫺1 can be attained during the morning peak hours compared to a range of 10–18 km h⫺1 in the CBDs of most other cities. Quantity restraints Though the ALS was successful in curbing traffic congestion in the Central Area by restraining traffic flow volumes during peak hours, it did not curb vehicle population growth. Nor did price restraints in the form of taxes such as import duties, registration fees and ARF deter vehicle purchases. As stated previously, vehicle population and traffic density in Sin2

Under the latest set of charges, whole-day licences ranging from S$1 to S$6 (S$3 for a private car) have to be purchased for entering the restricted zone from 07:30 h to 18:30 h on Mondays to Fridays and from 07:30 h to 15:00 h on Saturdays.

gapore increased by 93.4% and 45.9% in the 1975– 1990 period, respectively. Thus by 1990, the government was faced with the long term prospects of rising traffic volumes inside and outside the CBD and increasingly congested roads everywhere. With the land constraint problem of Singapore, there was little scope for massive road building without severe disruption to the life and environment of the island city-state. While vehicle taxes could be raised, as Toh (1992, p. 300) points out, its effect on demand could not be accurately ascertained. Furthermore, it is politically difficult to periodically adjust tax rates or to set very high ones. It was reasoned then that a quantity or quota restraint on vehicle ownership was necessary. Such a “mathematically precise” measure would not only limit traffic volumes on the road but curb the number of vehicular trips as well. The latter is verified by travel surveys conducted, which indicated that vehicle-owning households tend to make more trips than non-vehicle owning households (Fan et al., 1992, p. 31).

Implementation of the VQS On 1 May 1990, upon the recommendations of a Select Committee appointed by the Parliament of Singapore, the Vehicle Quota System (VQS), was introduced. By this system, Certificates of Entitlement (COEs) are required in order to use a new vehicle. The VQS has been devised to let market forces determine the premium prices of COEs for various categories of vehicles. Vehicle categories The quota system has eight different categories depending on engine capacity and intended car usage. They are listed as follows: Category 1: Small cars (1000 cc and below) 29

A unique demand management instrument in urban transport: F T Seik

Category 2: Medium-sized cars3 and taxis (1001– 1600 cc) Category 3: Big cars (1601–2000 cc) Category 4: Luxury cars (2001 cc and above) Category 5: Goods vehicles and private buses Category 6: Motorcycles Category 7: “Open” Category 8: Weekend cars4 Vehicles exempted from COEs are either public transport or special-purpose vehicles such as scheduled buses, school buses, emergency vehicles, trailers, diplomatic vehicles and vehicles for the disabled. The rationale for adopting separate categories is that this would protect buyers of motorcycles and small cars from being outbid by richer buyers of bigger cars and vehicles. The “open” category allows the successful bidder to choose whatever type of vehicle to purchase within the 6-month COE validity period. This gives some flexibility for market forces to affect the vehicular mix. For example, an increase in construction activity would spur the demand for trucks, which might not be fully met by the number of COEs in Category 5 but could be sought in the “open” category. Every year, 20% of the vehicles scrapped in each of the other categories are pooled to form the quota for the “open” category. Quota allocation Every year the government announces a rate of growth for the vehicle population, based on prevailing traffic conditions and road capacity. The present quota includes a net increase value equal to about 3% of the total vehicle population plus any replacement vehicles for vehicles de-registered in the preceding year as well as additional COEs arising from unused COEs, better traffic conditions and other reasons. Table 3 shows the vehicle quota allocations of 55 813, 55 578 and 50 675 vehicles for the years 1992, 1993 and 1994, respectively. The total COE quota figure for each year is then used to allocate the COE quota (proportionately) for individual categories in the year concerned, taking into account the existing vehicle population in each category and the number of vehicles de-registered in each category at the end of the preceding year. Toh (1992, p. 310) argues for yearly quotas for each category to be adjusted to reflect the size of demand based on the number of bids received as a percentage of the quota given. Though there is equity grounds for such a recommendation, this might prove difficult to undertake in practice as there is no foolproof way to differentiate between serious and nonserious bids. Some categories regularly receive COE bids as low as S$100 and thus the number of bids 3

The car population in 1994 was 324 026 private cars and the largest proportion was in the medium-sized category (180 613 or 55.7%) (Registry of Vehicles, 1995). 4 This category was scrapped in October 1994.

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made may not be a true reflection of actual demand. An area of future research would be to seek ways of making the allocation system more efficient one that minimises welfare losses to consumers. Bidding Auctions are held monthly through public tenders where bidders submit their bids for their chosen vehicle category either on forms or through the automated teller machines (started in April 1992), as well as having to put up a 50% deposit. Electronic bidding has enabled the processing of bids to be computerised and undertaken more efficiently and less costly. Toh’s (Toh, 1992, p. 305) prediction of a “bureaucratic nightmare” in the manual processing of bids has not come true. It was found that the number of bids submitted electronically increased from 1.7% in the April 1992 tender to 42.3% in the December 1992 tender (Registry of Vehicles, 1993, p. 21). Today, the majority of bids are submitted electronically. Individual bidders can only submit one application in each tender exercise. The COE premium in each auction is determined by the amount of the lowest successful bid and all successful bidders pay the same premium. Successful bidders for company cars pay double the quota premium in their respective categories. This system is preferred to a “pay-as-you-bid” system (where successful bidders pay the amount they bid for) as it is naturally acceptable if all successful bidders pay the same premium for the same category of vehicles. As reasoned by Koh and Lee (1994, p. 41), although in equity terms successful bidders who bid higher should end up paying more, high bidders would find it difficult to accept such a “pay-as-youbid” system since they would be treated differently from other buyers of the same product. The ratio of total number of bidders to number of successful bidders varies from category to category but is usually in the range of 1.5:1 to 3.0:1 (Registry of Vehicles, various years). There have always been more bidders than COEs available. For example, in the September 1992 tender exercise, Category 2 (medium-sized cars of 1001–1600 cc) received 2887 bids for a quota of 1323 cars (Olszewski and Turner, 1993, p. 360). The lowest bid was S$20 and the highest S$30 000. The resulting quota premium was set at the 1323th highest bid of S$20 741 which was payable by all 1323 successful bidders. COE validity A COE can be used to register a new vehicle within 6 months. The COE is then valid for a period of 10 yrs from the date of registration of the new vehicle.5 A new COE is not needed for buying a used 5 When the VQS was initiated, owners of vehicles which were 10 yrs or older on 1 May 1990 were given a 2-yr grace period to pay the PQP or face de-registration of their vehicles. Vehicles less than 10 yrs old were deemed to have a COE valid for up to the 10th year of the vehicle’s registration.

A unique demand management instrument in urban transport: F T Seik Table 3 Vehicle quota allocations for 1992–1994

Total vehicle populationa Total COE quotab comprising: Net increase allowed (3% yr⫺1) Replacements for vehicles deregistered in preceding year Additional COEs (e.g. unused COEs, better traffic conditions arising from usage restraint measures)

1992

1993

1994

557 584 55 813 17 000 29 544 9 269

584 322 55 578 17 000 31 379 7 199

611 611 50 675 17 000 29 622 4 053

Source: Registry of Vehicles (various years) Notes: a as at 31 Dec of the year b allocated for the period from May of the year to April the following year

vehicle if the existing COE is still valid. Perpetual entitlement is not allowed as vehicles with perpetual entitlement will rise in value through the years, making it difficult for those without a vehicle to own one in later years. At the end of 10 yrs6, the owner is required to renew the COE at the Prevailing Quota Premium (PQP) which is a 12-month moving average price of the COE in that vehicle category. Thereafter, no more renewals are allowed. However, if the vehicle is scrapped or exported, the owner will receive a prorated rebate on the quota premium which he had paid for his previous COE based on its remaining validity period.

Implementation problems Since the introduction of the VQS, various undesirable side effects have been encountered and fine-tuning measures have been taken to minimise such problems. Speculation on the prices of COEs Initially COEs were valid (for registering a new vehicle) within a 6-month period and were transferable, leading to widespread speculation, spiralling prices and “buy-and-sell” transactions. In the later part of 1990, corrective measures were taken: the period of COE validity was shortened to 3 months, auctions were held monthly and car distributors entitled to only 30 bids, and their COEs could only be sold to their own customers. These measures however dampened speculation only in the first few months. Prices rose again in mid-1991. In October 1991, COEs were made non-transferable but remained valid for a 6-month period (except for those in the open and goods vehicle categories which were transferable). At the same time, the 30bid allocation for car dealers was withdrawn. This helped reduce speculation substantially but did not totally eliminate it. Car dealers could still bid through proxies, register cars under these proxies’ names 6 Shorter-term 5-yr revalidation of COEs at half the prevailing premium was introduced in November 1992.

when they are successful, and then arrange for the transfer of car ownership within a few days to buyers (i.e. in effect a “double transfer” of COE and car). However, from March 1995, the “double transfer” problem was effectively checked by a new regulation: transfer of ownership of new cars was not allowed during the first 3 months; from the third to the sixth month, an additional transfer fee pegged to the relevant increase in COE prices is imposed if a transfer of ownership occurs. Increase in annual mileage of cars The average annual mileage of cars in Singapore is 18 600 km yr⫺1—high by international standards (LTA, 1996, p. 33). This is not surprising seeing that having invested heavily upfront on a car, the owner would want to make the most use out of the car. For example, the cost of motoring in Singapore for a medium-sized car over a 10-yr period on average would consist of: an upfront cost of 59% (brand new car); usage cost of 25% (petrol, road usage charges, parking and maintenance); and an annual fixed cost of 16% (road tax and insurance) (LTA, 1996, p. 33). Thus when usage cost is low compared with capital and annual fixed costs, motorists do not really feel the burden of frequent travel. The tightening of usage restraint measures, such as the imposition of the whole-day ALS in 19947 and the coming introduction of the island-wide electronic road pricing (ERP) scheme, scheduled for late 1997, are measures that have recently been taken to moderate this trend of high vehicle usage. Problems of the weekend car scheme The “Weekend Car” (Category 8), usage of which was restricted to off-peak hours, was introduced in May 1991 to enable more people to own cars without contributing to congestion. Weekend cars received preferential treatment in terms of lower taxes and fees. Owners of weekend cars received tax rebates on the registration fee, import duty and COE premium of up to S$15 000 as well as enjoying a 70% reduction in 7

Refer to note 2.

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A unique demand management instrument in urban transport: F T Seik

annual road taxes. This type of car could only be used during off-peak hours (19:00–07:00 h) on weekdays, after 15:00 h on Saturdays and all day on Sundays and public holidays. Owing to the lenient tax structure and typically lower quota premiums for weekend cars, those who registered weekend cars in the big vehicle categories enjoyed large savings on road tax and COE premiums, which more than compensated for the cost of purchasing the car plus using day licences (which cost S$20) everyday throughout the year. To overcome this abuse, the Off-Peak Car (OPC) scheme was introduced in October 1994, with the subsequent abolishment of Category 8 COEs. In the OPC scheme, an off-peak car is registered with a COE from the relevant car category and tax concessions are given which are almost the same for almost all cars of any engine capacity, thus effectively preventing any abuse of the scheme.

Impacts of the VQS Vehicle population Fig. 1 and Appendix A show the historical trend in car ownership in the decade before the VQS was implemented and in the period after its implementation. Upon imposition of a drastic increase in the ARF rate from 25% in 1972 to 55% in 1974 and then 100% in 1975 (Point A), private car and total vehicle ownership growth rates more or less stagnated in the period from 1974 to 1976. However, with good economic growth in the late 1970s, annual vehicle growth rates, particularly those of commercial vehicles, rose strongly. In the early 1980s, despite the imposition of measures such as higher registration fees, ARF rates and annual road taxes in 1980 and 1983 (Points B and C), vehicle ownership rates surged. Except for 1984 when the rate of increase was 3.2%, total vehicle ownership rates increased yearly at relatively high rates of above 8% in the period from 1980 to 1984. This was the period when the Singapore economy enjoyed robust annual real GDP growth rates of between 8 and 9%. A slump in vehicle numbers (negative growth) was observed during the brief worldwide economic recession of 1985–1986 (Point D). When the economy started to improve in 1987 (Point E), the rate of growth of vehicles rose in unison in 1988. With the launching of the VQS (Point F), the annual increase in car population slowed down to 5.4% and 4.6% in 1990 and 1991, respectively. In 1992, a massive scrapping of over 10 000 old vehicles took place (Point G) when the 2-yr grace period given to owners of vehicles older than 10 yrs at the time of implementation of the VQS came to an end in May 1992. Thus the yearly private car growth rate in 1992 was only 0.6% while the total vehicle growth rate recorded a 0.3% decrease. Despite high COE quota premiums in 1993 to 1995, private car and total vehicle ownership rates 32

Figure 1 Growth of total vehicle and private car populations from 1974 to 1995 Notes:A: The ARF rate increases from 55 to 100% of the OMV (1975); B: The ARF rate increases to 150% and the registration fee rose from S$15 to S$1000 (1980); C: The ARF rate increases to 175% (1983); D: The real GDP growth rate is −1.6% per annum (1985); E: The real GDP growth rate is 9.4% per annum from 1.9% the previous year (1987); F: The VQS is implemented (1990); G: Scrapping of over 10000 old vehicles (1992)

increased in the range of 4–6% yr⫺1, buoyed considerably by strong economic growth in this period. Research indicates that the demand for cars in Singapore is more elastic or sensitive to income changes rather than price changes (Olszewski and Turner, 1993, p. 366).8 Escalating prices have not deterred Singaporeans from owning cars as the economy and incomes have grown strongly. The rate of national economic growth appears to be a major influence on the growth of the car population. Nevertheless, the ultimate control of vehicle population by the VQS virtually ensures that increases in the number of vehicles will not exceed a predetermined ceiling on net increase of vehicle population

8 It has been calculated by Chin and Koh (1989) that a 1% increase in household income resulted in a 2% increase in the number of private cars in Singapore.

A unique demand management instrument in urban transport: F T Seik

Figure 2 Premiums for medium-sized cars (1001–1600 cc) from May 1990 to December 1996

(currently 3% yr⫺1)9, regardless of the rate of national economic growth. This ceiling, of course, can always be changed to suit prevailing traffic conditions in the country. Car prices Rising COE premiums have been witnessed in the post-VQS launching period. Fig. 2 graphically captures the trend of short-term fluctuations, but with long-term increases, of COE premiums for mediumsized cars (1001–1600 cc) over the same period. The quota premium for medium-sized cars rose from S$7 875 in June 1991 to S$38 994 in June 1994 (a 395% increase) to S$44 498 in June 1996 (a 465% increase). This is astronomical compared with the general rate of inflation in the period from 1991 to 1995 which was 9.7% and the increase in the import price index of vehicles from 1991 to 1995 of 13.7% (Department of Statistics, 1995). The COE component of car price today is high and it constitutes about 30–40% of the total cost for medium-sized cars and 15–25% for larger-sized

cars.10 Conventional vehicle taxes such as ARF, import duty and others contribute a sizeable but relatively fixed amount of 30–40% of total cost for all categories of vehicles (Olszewski and Turner, 1993, p. 363). Appendix B shows the value of quota premiums for COEs in all categories of vehicles from May 1990 to December 1996. In virtually all vehicle categories (except Category 6 for motorcycles), premiums peaked in late 1994 or early 1995 and then fell slightly and stabilized thereafter. This was because, in 1995, to help stabilize car prices, the government introduced a new rule to check the “double transfer” problem of cars (see previous section) as well as tightened car financing regulations. A 70% and 7-yr repayment ceiling was put on car loans, in contrast to the previous loan limit of 90% of car price and a 10-yr repayment period. Thus COE premiums for all categories which swung wildly upwards in 1993 and 1994 stayed on a more even keel in 1995 and 1996. Another contributing factor was the lower economic

10 9

The 4–6% annual growth rates recorded for 1993–1995 included allocations for both the 3% net increase as well as replacement vehicles for cases such as vehicles de-registered and unused COEs.

For example, a new Toyota Corolla 1.6GLi (1587 cc) car in September 1996 was priced at S$120 000 (COE is S$45 000 or 38%) while a new Toyota Crown 3.0 (2997 cc) car was priced at about S$235 000 (COE is S$45 002 or 19%).

33

A unique demand management instrument in urban transport: F T Seik Table 4 Car cost and affordability (1971–1994) Year

Annual per capita indigenous GNPa (S$)

Car price priceb (S$): Toyota Corona

Ratio: Car to per capita indigenous income

1971 1976 1981 1986 1991 1994

2761 5231 9869 13 461 20 031 28 820

9900 21 990 31 222 36 521 73 014 129 200

3.59 4.20 3.16 2.71 3.65 4.48

Sources: Phang (1993) and LTA (1996) Notes: a Indigenous GNP excludes incomes which accrues to foreign workers and foreign entrepreneurs who are residents of Singapore b Car price components include COE premium, OMV, ARF, import duty, registration fee, first year road tax, car distributor’s costs and profits, insurance and government sales tax

growth rate in 1995 and 1996 as compared with bullish growth rates earlier in 1993 and 1994. Nevertheless, in the long term, with increasing demand for cars due to factors such as population and income growth and the restraint on supply of COEs, it is likely that price rises will continue although on a more moderate level. Moderate COE price increases can be expected because the government has often found it politically necessary to moderate COE price increases in some way in order to soothe public anxiety over rising car prices. Affordability Table 4 shows that in the pre-COE years from 1976 to 1986, there was increased affordability of a typical medium-sized Toyota Corona11 car because per capita incomes rose faster than car prices. The car price to per capita income ratios dropped from 4.20 in 1976 to 2.71 in 1986. This changed after 1991, 1 yr after the implementation of the COE system, and the ratio of the Toyota Corona car price to annual per capita income rose to 4.48 in 1994 from 2.71 in 1986 and 3.65 in 1991. How affordable was the car to Singaporean households in 1996? The price of a popular and relatively cheaper Toyota model, the Toyota Corolla 1.3XLi (1332 cc) is considered. The average monthly household income in Singapore in 1996 is estimated at S$4 744.12 The 1996 average price of a brand new Toyota Corolla 1.3XLi car (S$110 000) is some 23 times the average monthly household income. If the maximum 70%, 7-yr loan is used, the monthly car loan repayment (S$1 109) is 23% of the average monthly household income. Using the normal assumption that monthly repayments on car purchase should not exceed 25% of 11

Toyota cars are consistently the most popular car make in Singapore. This is calculated based on an average 9.04% yr⫺1 increase in average monthly earnings from 1990 to 1995 (Department of Statistics, various years). The average monthly household income from the 1990 Census was S$3 076 and thus the 1996 figure is estimated to increase by 54.24%, that is, six times the 9.04% yr⫺1 increase.

12

34

monthly household income, it is found that a new Toyota Corolla 1.3XLi is affordable by only 39.3% of Singaporean households in 1996.13 This figure is low for a country of relatively high per capita GNP (over US$20 000). The private car population of 342 245 in 1995 translates into an ownership rate of about 47% of Singapore households.14 This is low compared with 1990 figures of over 60% for the UK (per capita GNP of US$16 100) and nearly 90% for the USA (per capita GNP of US$21 790) as reported in Phang (1993, p. 329). The adverse impact of the VQS upon affordability means a drastic curtailment of citizens’ aspirations for car ownership. It is, however, consistent with the VQS’s objective of restraining the latter. Traffic congestion Graphical data released by the LTA in 1996 (Fig. 3) shows, for the area covered under the ALS, the total volume of inbound traffic during the morning (07:30– 10:15 h) and evening (16:30–18:30 h) peak hours compared with total vehicle population in Singapore in the past two decades. Total traffic volumes during morning peak hours fell dramatically after the imposition of the ALS in 1975, rose gradually over the years but is still below the 1975 level. The ALS initially did not cover inbound traffic volumes15 during evening peak hours as it was felt that congestion during evening hours was not as pressing a problem as that for morning hours. However, due to increasing 13

This is based on the 1990 Singapore Census’s (Department of Statistics, 1992) breakdown on frequency distribution of households by income categories. The income limits for each category were readjusted by assuming an increase of 54.24% from 1990 figures (see note 12). 14 The number of households in 1995 of about 730 000 is estimated based on the 1995 population of 2.99 million and the 1990 Census’s average household size of 4.1. Thereafter the private car ownership rate in 1995 is calculated assuming an ownership rate of one car per household. 15 While restraints of outbound traffic volumes instead of inbound ones may also be appropriate, this was found to be technically unfeasible due to lack of alternative escape routes out of the CBD for motorists.

A unique demand management instrument in urban transport: F T Seik

Figure 3 Changes in the volume of inbound traffic during the morning and evening peak hours since 1975. Source: Land Transport Authority (1996, p. 34)

public concern in the late 1980s, the evening ALS was imposed in 1989, sending evening traffic volume plunging down. Morning and evening traffic volumes, after the imposition of the VQS in 1990, still rose but at a gradual pace and they are still below 1975 levels. Given the strong economic growth rates in the 1990s, it is likely that the post-1990 traffic volumes in the CBD would have been much higher without the VQS. Beginning 1996, as outlined in the LTA’s White Paper (LTA, 1996), the government has proceeded with other measures to reduce congestion in the CBD and elsewhere, such as road improvements, underground road networks and the ERP scheme. It will be interesting to study the impacts of these measures on traffic volumes and COE prices. One area of future research is on whether the ERP, a more efficient usage restraint measure, will substantially reduce traffic volume and, as hoped by the government, enable a higher allocation of COEs in coming years. Other impacts The VQS experience with car dealers shows that dealers should not be involved in the COE bidding process as they, with their purchasing power and

desire to maximise sales, may bid on the high side and push up COE prices unnecessarily. Another impact is that the VQS has turned the car market into a very competitive one since there is quite a large number of dealers competing in a relatively small and fixedsize market (Koh and Lee, 1994, p. 42). To stay in business today, car dealers have to do their pricing and marketing well, for although the size of the market is much more certain in terms of quantity, it is less certain in terms of price. The typical pricing strategy today, to attract buyers, is for a dealer to offer an all-in monthly price quotation that includes a COE rebate value estimated based on prevailing COE price trends. If the actual COE price falls below the rebate value, buyers are reimbursed the balance due while if it is above the rebate value, dealers absorb the balance. This strategy shifts some of the price uncertainty and risk on to dealers, which for them is grudgingly unavoidable in order to maintain sales in a competitive market. There has been no large-scale study conducted on public opinion towards the VQS. However, a study of 1619 university undergraduates in 1996 revealed that while 79% of the respondents are in favour of controls on vehicle ownership given the country’s 35

A unique demand management instrument in urban transport: F T Seik

land constraints, only 38% support the VQS instrument compared with 31% who opposed it, while another 31% were undecided (Straits Times, 1996, p. 6). The survey also revealed that there were strong aspirations among undergraduates to own a car with 64% stating their desire to own one after starting their careers. The implication is that while respondents support a rational macro-level policy to curb vehicle ownership, many find it difficult to support the VQS instrument which is “painful” to them personally. The government has however been able to push the VQS through as they are able to provide an attractive alternative transport mode—the public transport system— which is relatively cheap, affordable and efficient in Singapore.

Lessons from the VQS experience Singapore is a small city-state with a land scarcity problem, high population and traffic densities. It however enjoys high economic growth and seeks to sustain this growth by ensuring minimal traffic congestion. Restraining vehicle quantity by the VQS, although resulting in very high car prices that are not affordable by a large proportion of households, has proved effective. Singapore is a popular place for many foreign officials coming to study the country’s experiments with transport policy instruments such as the VQS, ALS and ERP. Should such a scheme be contemplated elsewhere, some lessons from the Singapore experience may prove useful. First, the VQS entails strong political will on the part of the government. Leaders must display courage and foresight in implementing demand management policies and instruments such as the VQS. A second prerequisite is that there must be public acceptability of such a policy. In Singapore’s case, the VQS is part of a comprehensive transport policy package where there is availability of an efficient and cheap public transport system comprising rail, bus and taxi services. Furthermore, Singaporeans are often stated to be literate, well-informed, docile and law-abiding citizens who have been generally cooperative and supportive of government policies (Quah, 1984, p. 15). The public generally understands the country’s land scarcity problem and is willing to accept the government’s transport policies and plans. Third, the VQS bidding process must be technically feasible, of low capital and operating cost, easily understandable, transparent and impartial. The scheme should be designed carefully so as to avoid implementation problems such as those experienced earlier in Singapore (e.g. speculation). Fine-tuning of the system will be necessary from time to time to reflect changing traffic and other conditions. Indicators of traffic congestion (e.g. vehicle speed and volume in congested areas during peak hours) should be formulated and regularly monitored. The regular and explicit linking of the VQS and other instruments 36

to such indicators, something not yet fully utilised in Singapore, would make the public more aware of their positive impacts as well as help transport planners evaluate the degree of efficiency of policy instruments used. The indicators could serve as a baseline for gauging public opinion on how much congestion is tolerable. However, there are limitations which need to be recognised in implementing a VQS. One is that Singapore is largely insulated from foreign traffic, a factor not likely to be encountered in other cities. Thus congestion attributable to outside traffic entering city boundaries in other countries may present problems that need to be addressed as well. Another limitation is that in many cities, transport policy-making may be fragmented, and shared by different departments or different municipalities whereas Singapore has a one-level government and a one-stop transport authority. Another likely criticism is that the VQS, although achieving certainty for the government in terms of the vehicle population, results in consumer uncertainty over car prices. Although car dealers can absorb some of this uncertainty, for some the fluctuating-and-rising COE prices may be a frustrating wait-and-see game. Another criticism is that for many citizens, the VQS appears inequitable as resultant car prices are largely unaffordable. Implementing authorities need to explicitly address this issue by channelling revenue from the VQS into improving public transport systems. The VQS concept appears to be relevant for cities facing similar land-scarce, large population and high economic growth conditions, such as Hong Kong. It may also be useful for cities where a partial VQS is desirable such as in controlling the growth in population of heavy vehicles, for environmental and other reasons. A partial VQS may also be used to restrain multiple car ownership; for example, a household may be required to bid for a COE for purchasing any vehicle beyond the first. To most transport planners, a vehicle quota system would perhaps represent a “last resort” measure that cities can turn to should all other measures to alleviate traffic congestion fail.

References Chin, A and Koh, J L (1989) Factors Affecting Car Ownership in Singapore. Working Paper 3/89, National University of Singapore, Singapore. Department of Statistics (1992) Singapore Census of Population 1990. Households and Housing. Government of Singapore, Singapore. Department of Statistics (1995) Yearbook of Statistics 1995. Government of Singapore, Singapore. Department of Statistics (various years) Yearbook of Statistics. Government of Singapore, Singapore. Fan, H S L, Menon, A P G and Olszewski, P S (1992) Travel demand management in Singapore. ITE Journal 62, 30–34. Koh, W T H and Lee, D K C (1994) The Vehicle Quota System in Singapore: an assessment. Transportation Research A 28, 31–47.

A unique demand management instrument in urban transport: F T Seik LTA (Land Transport Authority) (1996) White Paper. A World Class Land Transport System. LTA, Singapore. Olskewski, P and Turner, D J (1993) New methods of controlling vehicle ownership and usage in Singapore. Transportation 20, 355–371. Phang, S Y (1993) Singapore’s motor vehicle policy: review of recent changes and a suggested alternative. Transportation Research A 27, 329–336. Quah, J S T (1984) An atypical new state. Solidarity 101, 14–18. Registry of Vehicles (1993) Annual Report 1992. Registry of Vehicles, Singapore. Registry of Vehicles (1995) Annual Report 1995. Registry of Vehicles, Singapore. Registry of Vehicles (various years) Annual Report. Registry of Vehicles, Singapore. Straits Times (9 March 1996) NUS Undergraduates: We back government curbs but we want our own cars, 6.

Tan, S B (1991) Future directions in transportation. Proceedings of the City Trans Asia 91 Conference, pp. 1–10. The Highway (various issues) Automobile Association of Singapore, Singapore. Toh, R S (1992) Experimental measures to curb road congestion in Singapore: pricing and quotas. The Logistics and Transportation Review 28, 289–317. UNCHS (United Nations Centre for Human Settlements) (1995) Economic Instruments and Regulatory Measures for the Demand Management of Urban Transport. UNCHS, Nairobi. Wilber Smith and Associates (1974) Singapore Mass Transit Study, Phase 1 Final Report. Wilber Smith and Associates, Singapore. Yap, K L (1993) Factors affecting congestion costs in the CBD of Singapore. IES Journal 33, 39–46.

Appendix Table 5 Vehicle population in Singapore and related indicators (1974–1995) Year

Private carsa

Other vehicles

Total number of vehicles

1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

142 674 142 045 135 499 134 903 137 240 143 402 152 574 161 692 179 635 202 092 217 119 221 279 220 566 222 487 237 801 257 371 271 174 283 746 285 500 303 864 321 556 342 245

134 192 138 333 144 365 155 051 172 144 195 327 218 767 240 113 260 641 274 196 274 203 265 481 253 093 248 637 254 007 263 166 271 178 275 558 272 084 280 458 290 055 299 884

276 866 280 378 279 864 289 954 309 384 338 729 371 341 401 805 440 276 476 288 491 322 486 760 473 659 471 124 491 808 520 537 542 352 559 304 557 584 584 322 611 611 642 129

(⫺0.4)c (⫺4.6) (⫺0.4) (1.7) (4.5) (6.4) (6.0) (11.1) (12.5) (7.4) (1.9) (⫺0.3) (0.9) (6.9) (8.2) (5.4) (4.6) (0.6) (6.4) (5.8) (6.4)

(3.1) (4.4) (7.4) (11.0) (13.5) (12.0) (9.8) (8.5) (5.2) (0.0) (⫺3.2) (⫺4.7) (⫺1.8) (2.2) (3.6) (3.0) (1.6) (⫺1.3) (3.1) (3.4) (3.4)

(1.3) (⫺0.2) (3.6) (6.7) (9.5) (9.6) (8.2) (9.6) (8.2) (3.2) (⫺0.9) (⫺2.7) (⫺0.5) (4.4) (5.8) (4.2) (3.1) (⫺0.3) (4.8) (4.7) (5.0)

Real GDP growth rate (% yrⴚ1)b

4.1 7.5 7.9 8.6 9.4 9.7 9.6 6.9 8.2 8.3 ⫺1.6 1.9 9.4 11.3 9.4 8.8 6.7 6.0 10.1 10.1 8.8

Source: Department of Statistics (various years) Notes: a Include private cars and company cars b Figures indicate percentage change over preceding year (at 1985 market prices for 1980–1995 and at 1968 market prices for 1974–1979) c Figures in brackets indicate percentage increases over preceding year

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A unique demand management instrument in urban transport: F T Seik Table 6 Premiums for Certificates of Entitlement (S$) (May 1990 to December 1996) Month

May 1990 Aug 1990 Sep 1990 Oct 1990 Nov 1990 Dec 1990 Jan 1991 Feb 1991 Mar 1991 Apr 1991 May 1991 Jun 1991 Jul 1991 Aug 1991 Sep 1991 Oct 1991 Nov 1991 Dec 1991 Jan 1992 Feb 1992 Mar 1992 Apr 1992 May 1992 Jun 1992 Jul 1992 Aug 1992 Sep 1992 Oct 1992 Nov 1992 Dec 1992 Jan 1993 Feb 1993 Mar 1993 Apr 1993 May 1993 Jun 1993 Jul 1993 Aug 1993 Sep 1993 Oct 1993 Nov 1993 Dec 1993 Jan 1994 Feb 1994 Mar 1994 Apr 1994 May 1994 Jun 1994 Jul 1994 Aug 1994 Sep 1994 Oct 1994 Nov 1994 Dec 1994 Jan 1995 Feb 1995 Mar 1995 Apr 1995 May 1995 Jun 1995 Jul 1995 Aug 1995 Sep 1995 Oct 1995 Nov 1995

38

COE category 1

2

3

4

5

6

7

8

1004 3080 5030 5612 3102 2001 2006 210 652 1202 4510 7002 7004 9660 9508 6300 7500 9616 10100 9002 12160 15000 17300 17200 13690 13060 15004 17020 19530 19930 7000 14896 16442 18700 21268 22750 23444 23650 24206 26240 28206 32098 34960 33095 21900 25970 28710 23232 18888 23076 24340 29000 31246 30100 22200 21404 22230 10200 23908 27846 27550 22010 21064 18250 18498

3022 6012 9888 7220 2004 3202 3224 2649 909 1804 5258 7875 8002 9040 10520 6528 9100 12958 16602 11000 10406 14958 20542 20500 18994 19510 20741 22888 24982 23360 20010 15280 17800 23180 24800 25000 26000 27080 28502 30536 34560 40904 43700 38022 32420 33040 36030 38994 42510 44008 45100 49800 56600 47033 40001 34000 35250 38100 43088 46046 41400 40050 42100 45006 45700

5001 7238 11104 10400 1120 4000 3600 3001 210 1402 5610 11020 9178 12558 13080 10002 12002 14800 18500 20002 16100 19739 24798 30002 24758 20998 24118 10002 25006 15219 19000 15628 15002 22000 26700 27310 29800 28118 28400 32500 37200 46638 63000 59098 53300 50060 51100 58008 65100 70008 75300 80300 95100 83500 61500 60006 38888 50902 64200 71510 66010 51996 50500 54080 45200

528 4550 5602 5886 1502 2002 2004 988 1004 800 3020 10000 12047 12742 13000 12002 13004 16788 19666 15080 17600 20037 25108 32898 24828 21008 1500 20982 26118 19878 15200 15200 15600 17988 22008 22808 20100 26498 26700 31400 37380 45600 61998 65000 56000 52000 52998 58808 66006 72100 81000 90100 102002 110500 65000 65001 50001 53000 61200 75002 72100 58088 58200 59400 60002

1 1018 2002 1502 530 312 300 102 56 1 112 1820 1510 3886 6002 6128 6800 7020 4300 4500 4480 5002 6050 6510 6320 6950 7660 8698 9698 9490 9510 9200 10516 12960 16300 17096 18050 20100 24020 28800 32800 28082 29000 26000 20050 20400 22900 26100 26000 27100 28650 33500 37000 39000 31996 18200 20400 28888 30230 27520 25000 22300 23100 29000 28560

152 320 400 80 200 180 180 122 100 122 310 410 430 610 690 24 24 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 5 21 500 1802 1850 1200 738 650 926 1430 2002 2320 1680 1840 2288 2502 2703 2588 2688 3002 4006

3376 7750 7400 11100 5002 3170 3410 2508 988 1630 6062 9012 11171 12368 12488 12222 14337 16738 18080 18104 18587 20288 25002 31888 23870 24018 25060 26014 26984 22890 20018 16100 16650 22820 28420 26700 27510 28826 30360 32960 37700 47808 63798 65996 52440 52896 57760 62400 65590 72992 83800 94008 105000 95986 69000 39500 45002 43888 63000 78098 68008 60188 55002 60200 65098

– – – – – – – – – – 3600 6263 6733 4524 5004 1110 3002 6868 11457 13837 14048 14972 15834 11008 8302 11002 13000 15108 16200 15732 15998 9700 12440 15000 15500 15068 14242 15030 15000 16002 18100 22080 28150 30000 15010 21048 25078 27494 26896 35002 45300 – – – – – – – – – – – – – –

A unique demand management instrument in urban transport: F T Seik Table 6 Continued Month

COE category

Dec 1995 Jan 1996 Feb 1996 Mar 1996 Apr 1996 May 1996 Jun 1996 Jul 1996 Aug 1996 Sep 1996 Oct 1996 Nov 1996 Dec 1996

18138 19000 12200 22008 21598 19198 16898 18200 20200 19116 13888 23212 24832

30528 43100 41006 40728 37480 45224 44498 43218 44108 45000 44994 46508 47764

55008 30008 53100 48888 46666 46888 47010 45000 40300 42010 45002 48350 53360

56400 50003 45500 49100 50002 45001 46200 50004 50002 45002 45010 46052 51008

27080 23888 21501 22600 24800 28378 28070 27920 27030 28480 30380 31510 33610

4202 3208 1900 1720 1758 2520 2860 2430 2800 2988 2808 3002 3150

53100 55002 44700 49708 46100 47688 48890 48002 44038 45008 46888 48178 55690

– – – – – – – – – – – – –

Source: The Highway (various issues)

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