The Straits Times - August 2, 2012
By: Christopher Tan
IS THE Government mixing
up two separate objectives in its latest move to remove taxi bids
from Category A of certificates of entitlement (COEs) - long the
staple of buyers of bread-and-butter cars?
Or is it trying to kill two
birds with one stone?
In an announcement with few
details last week, Transport Minister Lui Tuck Yew said that taxi
companies will no longer have to compete with mainstream car buyers
for COEs. Instead, their certificates will be drawn from the Open
Category, currently the domain of big-car buyers.
As a concession, cab operators
will not have to pay Open Category prices, but a three-month
average of Category A prices. The latter are usually 10 per cent to
50 per cent lower than the former.
Exactly how many COEs will be
drawn from the Open Category for taxis will hinge on how available
the cabs are to commuters.
Despite having one of the
highest number of cabs per 1,000 residents among developed cities,
Singapore, it seems, remains one of the hardest places for someone
to get a cab.
So the Government's decision to
remove taxi bids from Category A, and tying how many COEs cab
companies can have to a basic service standard, appears to be a
double-barrelled strategy.
First, it aims to remove an
upward pressure on Category A premiums by taking taxis out of this
category. This will have a profound effect on the affordability of
cars, as well as on Singapore's worrying inflation rate.
Category A accounts for more
than half of all COEs that car buyers bid for.
Second, it is putting the onus
of ensuring taxi availability on the cab companies. If they want
more COEs to expand their fleets, they will have to meet this
service standard somehow.
Seems like a neat cure-all
solution. But is it?
Let's examine the issues at
hand. Singapore has 5.2 cabs per 1,000 residents, compared with 3.3
in London, 2.6 in Hong Kong and 1.5 in New York.
Since the Government liberalised
the taxi industry in 2003, the cab population has ballooned by
nearly 40 per cent to more than 27,000 last year. Yet, commuters
constantly gripe that hailing a cab is a chore.
Taxi ridership grew merely 16
per cent from 2003 to last year.
It is clear that cab companies
currently have no direct incentive to improve taxi availability.
Their primary objective is to collect rental from hirers (cabbies),
with as big a fleet as they can muster.
So, pegging an operator's
expansion to taxi availability is ingenious, no?
But this is what could well
happen: Taxi companies will come out to support the Government's
initiative, but their efforts to raise taxi availability will
fizzle out.
Taxi availability (or the lack
of it) is largely a function of the current business model and fare
structure. Driving a cab is not a career choice for most people.
For many drivers, it is often the last resort.
Another cohort is made up of
drivers who are not "career cabbies". It is estimated that up to
one-third of cabbies today are folks like retirees or small
business owners, who will ply the streets just long enough to cover
their daily rental, and use their cabs as their personal transport
for the rest of the day.
Cabbies will naturally drive
when the yield is highest. Thus they will drive when and where
surcharges apply. They will also wait for call bookings.
As long as this status quo
remains, it will be hard for taxi availability to
improve.
In fact, taxi companies will, in
all likelihood, rush to expand their fleets before the new rules
kick in in 2014.
The authorities could of course
mandate a minimum mileage a cabby has to clock a day. But this will
have an environmental cost, with no guarantee that the extra
mileage will be "occupied mileage". In other words, cabbies may be
forced to cruise empty.
The second issue at hand is COE
premium spikes. While the current Category A price spiral is
fuelled by taxi bids, the underlying cause is a record supply
shortage.
If the COE supply had not
plunged to less than a third of what it was just four years ago,
the influence of taxi bids would not have been so
strong.
What accounts for the supply
shortage has been well documented. The COE system suffers from a
feast-and-famine supply phenomenon that the authorities have long
ignored. Until now.
But instead of a bold overhaul
of the 22-year-old system to improve equity, we are going to see
yet another tweak. The latest one, to remove taxi bids from
Category A, will remove further upward pressure on premiums, but it
is unlikely to send premiums to saner levels.
This is because Category A COE
supply for the current six-month period is nearly 40 per cent lower
than that of the last six months.
So, even without bids from taxi
companies - which account for around 25 per cent to 30 per cent of
total bids - COEs in this segment will probably remain
firm.
What car buyers and sellers have
been clamouring for is a more stable and predictable supply
pattern: one that does not see premiums at $5,000 in one year and
$90,000 in another.
Mr Lui has said that he is
likely to "save" some certificates during the next bonanza period
from 2014 to 2018 for future years.
But how many? And how will the
"saved" COEs be dispersed later?
Even before clarity dawns upon
those issues, we now have yet another uncertainty: how the supply
of Open Category COEs will be affected by taxi bids
post-2014.
It is admirable that the
Government admits things are not working as well as they should,
and is looking to fix the system.
But linking taxi availability to
COE availability may only complicate matters further.
As with all problems, it is
better to go right to the root cause for a permanent fix. In both
cases, the root causes are not unknown.
But, to reiterate, taxi driving
has to be made more attractive as a career choice; cabbies need to
be incentivised to pick up more fares as and when they appear,
rather than face disincentives if they don't meet a
quota.
Next, the vehicle quota system
should contribute to a more sustainable vehicle population growth
pattern, with as little social, economic and political cost as
possible.
If it is unable to do that, a
complete rethink is probably the thing to do.