By Vignesh Louis Naidu –
The government tries its best to make cars unaffordable and yet we stubbornly insist on buying them. In this year’s budget the government announced another round of measures to increase the cost of a car and yet the demand for COE still far outstrips supply.
Why do we need cars so badly and use them so excessively? Are cars really a necessity in Singapore? Is our public transport system so bad that we would rather spend copious amounts of money on the privilege of owning a car?
Maybe it’s time we rethink our approach towards reducing car usage in Singapore.
Let’s get one thing clear from the get-go; Singapore is a small country and car usage not only causes congestion but also unnecessary pollution. Reducing vehicle utilisation is a necessary policy measure.
Standard economic principles would suggest that the increased taxation with a controlled supply (managed through the COE system) would lead to a decrease in demand. Demand is certainly lower than it would be in an economically free market but car ownership is still relatively high.
What is more worrying is the level of car utilisation in Singapore. The annual mileage of cars in Tokyo and Taipei is half that of those in Singapore. (Christopher Tan, The Straits Times, 30 April 2012: Time to rethink COE system?)
I shall propose reasons as to why: 1.The demand for cars (i.e. the demand for COEs) remains strong, 2.When we own a car, it is highly utilised.
Despite the measures announced this year, COE’s prices today are roughly eight times what they were a mere three years ago. Yes, supply has been reduced but not by a factor of eight or anything close to that.
I think that our successful public housing system could be one of the factors contributing to this rise in COE prices.
The famous economist, Tibor Scitovsky noted, “Money income as a measure of one’s success in life has the drawback that knowledge of it is seldom in the public domain. Therefore to enjoy not only one’s high income, but also the esteem it can secure, one must make it known through appropriate spending behaviour.”
At last count, roughly 82% of Singaporean families live in HDB apartments. We all work really hard in Singapore aspiring for a better life. But intrinsically all of us want others to know about our success. The greatest display of success would be in the acquisition of bigger and grander houses. With property prices in Singapore being one of the highest in the world, this is simply not possible. So we do the next best thing: we buy cars.
It is my opinion that the latest round of measures may have inadvertently increased the appeal of car ownership. Now when a friend purchases a car, you don’t just think he is successful because he can afford the monthly instalments but you are amazed that he has the cash for the down payment.
Behavioural economics is a relatively new field which the Singaporean government has utilized in its policy making. It can be used to explain the high mileage clocked by cars in Singapore. Despite our small physical size, cars in Singapore clock an average of 24,000km per annum. I believe the principle of ‘honouring sunk cost’ has a part to play.
We fork out a large amount of money for the luxury of owning a car. We will incur the cost regardless of whether we use the car or just park it at home. The incremental cost of running a car; petrol, parking charges, ERP etc is significantly smaller than the cost of ownership. As such, most Singaporeans feel that they should use the car as much as possible. I even find myself subscribing to that train of thought. Whenever my parents choose to take public transport, I will always encourage them to drive. “Mum you might as well drive, leaving the car at home is pointless, we are still losing money on it. Use the car, why bother?” And I studied economics.
The COE system only aids in this fallacy of honouring sunk cost. We have little incentive to use our cars sparingly so that we can prolong their lifespans. At the end of 10 years a car is usually destined for the scrapyard, unless it’s a very unique and desirable example that could be exported. I personally think it is very tragic that cars that are only 10 years old or younger are relegated to the crushers.
I think the government has thus far done a great job in ensuring that our roads do not get as congested as many of our Asean neighbours’. The government has also expended a great deal of resources in building a world-class public transportation network. But we still have a problem. The demand for cars does not seem to be abating and the level of usage remains unnecessarily high.
Maybe it’s time for us to start thinking outside the box. Maybe the government should accept that car ownership is always going to be highly desired by Singaporeans. We should not stop Singaporeans from aspiring to own a car. We should incentivise them to leave the car at home and utilise public transport as often as possible.
Car ownership does not create congestion, car utilisation does.
Vignesh Louis Naidu is a young and passionate Singaporean who recently completed the Master of Public Policy course at the Lee Kuan Yew School of Public Policy.