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The COE tweaks

13 April 2014
 
Singapore controls its car usage and population using several measures.  It used road taxes in earlier days to control car usage as well as air pollution.   It then introduced car registration taxes later to limit the population growth.  When these measures failed,   it  introduced Certification of Entitlement (COE).  In between, Singapore tweaked the COE system,  introducing “weekend cars” for example.  The most recent tweak was to recategorise those cars in Category A. 

What is COE System?


Those who want to own a car in Singapore must first obtain a Certificate of Entitlement (COE) in the appropriate vehicle category. Each COE represents a right to own a car for 10 years.

There are altogether 5 categories for various types of vehicles and the COE are opened for bidding twice a month.  Category A  used to be for car of engine capacity of up to 1,600 cc and category B for those above 1,600 cc.  Category A was earmarked for mass-market buyers and sellers and therefore,  has more  COE available for bidding.  It has always commanded a lower COE prices.  

What is the recent COE Tweak? 


The recent tweak introduced a new element called “engine power” besides the original element of engine capacity of up to 1,600 cc for Category A.   Cars having a powerful engines more than 130bhp will no longer be qualified for bidding under Category A even though they are less than 1,600 cc.  This latest tweak literately “kicked out” more powerful smaller branded cars such as Mercedes and BMW from Category A.


What they said about the recent COE Tweak?


The critics and those in the car sales cried foul but the Authorities went ahead to implement the rule with the understanding that this  rule can be further tweaked for improvements to be made.  After 2 months in operation when the public did not notice a fall in COE prices,  the Authority came out to say that the recent COE tweak has achieved its goal to retain the car models for the mass-market.  Its goal was not to lower the COE prices.

What was the Authority’s Original Goal?


No one quite knew what the Authority’s original goal was although the mass was of the view that the Authority was trying to cap COE price in Category A when it was rising rapidly.  Some thought that owners of the branded cars like Mercedes and BMW usually have deep pockets and therefore,  they could hike the COE prices.

Why the Recent Tweak did not work?


If one were to analyse the recent tweak,  one would find that the recent tweak did not comply with the fundamentals of controlling the car population nor the usage;  instead,  it deviated with the intention to regulate the price of Category A.  It is "designed" to fail.

The basic economic theory always tells us that the price of a product is often controlled by supply and demand and not by product’s other properties such as shapes or dimensions.  

The recent tweak may have managed to “squeezed out” the branded car to the other categories but what good does it serve?  On the other hand,  the recent tweak “punishes” those car owners who wanted to buy more economical, efficient and more powerful branded cars.

Earlier days,  the Singaporeans' forefathers came out with the various categories of  taxes tied to capacity of the cars because cars caused pollution;  therefore,  petrol cars has lower taxes than diesel cars;  cars with smaller engine capacity has lower taxes.  They increased the amount of taxes and introduced car registration taxes to regulate the population at the later stage.  When that failed,  they introduced COE.   The original idea of COE was for bigger car to pay higher COE as it has a bigger footprint;  therefore,  occupying more valuable space.  For ease of implementation,  COE categories and the numbers were tied to engine capacities instead of the cars' footprints. That worked pretty well.   

Electric Cars


These cars will be taken by storm in the future when they have improved the energy storage system.  Electric cars could no longer be ruled by engine capacities nor could it be classified properly using engine horse-powers.   Electric cars may be able to churn out more powers than ordinary petrol engines for the same physical size because the energy driving system will be much smaller.  There would be a need for the Authority to reclassify the  present COE categories in the future to cater for electric cars.   It is hope that Singapore Government could introduce new tweak that would comply with the fundamentals of controlling car population and usage instead of tweaking  around with the COE price.
 

Conclusion


Singapore  Government has often learnt from its mistakes.  It has progress far to achieve what the people have today.  It is hope that Singapore Government can take the recent COE tweak on engine power as a lesson learnt and refine its future tweaks in order to serve its  citizens well.   

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