IMPACT OF THE VEHICLE QUOTA SYSTEM ON BUSINESS COSTS IN SINGAPORE

Abstract

On 1 May 1990, all new cars purchased in Singapore require a Certificate of Entitlement (COE) before they can be put on the road. This scheme is known as the Vehicle Quota System (VQS). The VQS has been a very successful quantity measure aimed at restricting the number of cars on the road by restricting the number of new cars that can be put on the road. It is a more certain measure to restrict car ownership than existing price measures. However, the VQS has also led to increased costs of car ownership because of the steeply increasing COE quota premiums. As a result, much interest on this subject has surfaced, and there has been much research on the efficiency and equity aspects of the scheme. The effects of the VQS arc not confined to private car owners alone. Since all vehicles arc subject to the scheme, businesses have also felt the impact of the rise in COE quota premiums. Businesses not only need goods vehicles (commercial vehicles) for the transportation of goods, but many also require the use of passenger vehicles. To date, there has been no comprehensive research done on this aspect. This dissertation therefore aims to provide some insight as to the impact of the VQS on business costs in Singapore. It was recognised that different businesses require different transport inputs, and would therefore be differently affected by the VQS. An input-output analysis was thus adopted to factor in such inter-industry differences. The methodology has allowed the calculation or the differential cost impacts on the various industries in Singapore as a result of increases in transport costs because of the VQS.

At the same time, it is also recognised that the VQS brings along with it benefits. The benefit of' the scheme is that it will help to reduce potential traffic congestion as it is aimed at preventing the future car population in Singapore from becoming too prohibitively high.

Again, the task was to find a way of incorporating such gains into the analysis. The benefit of the VQS, clearly, is to reduce travel time for both goods and passengers. Proxies for the value of travel time were thus examined. Different industries would value time savings differently because of the different time-sensitivities of their operations. The input-output methodology adopted earlier to work out the cost increases was therefore also very useful for the benefit analysis. With the costs and benefits of the VQS incorporated, results obtained are reported and analysed in the last two chapters of the dissertation. The results seem to support the Singapore government's view that businesses in Singapore will generally gain from the implementation of the VQS. Of course, it is not all industries that experience net gains as a result of the policy, but it was found that the major industries (defined as those who contribute larger proportions to Singapore's GDP, and those identified as industries that will spearhead Singapore into the twenty-first century) will benefit.