Speeches
Transcript of Response by Senior Minister of State for Finance, Mr Chee Hong Tat, on the Motion on Cost of Living on 7 November 2023, in Parliament
Topics
Cost of Living
7 November 2023
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Managing impact of inflation
Mr Speaker, cost of living is a major concern around the world.
Food and energy prices have risen significantly, caused by disruptions following Russia’s invasion of Ukraine and extreme weather patterns.
Many countries were affected.
For instance, Germany saw natural gas prices peak in 2022, at nearly tenfold of the 2021 average. While prices have since moderated, they remain significantly above the pre-war prices.
India continues to see prices spike across various food items, including essentials like rice and vegetables. From June to August this year, tomato prices surged by 1,400% at some wholesale markets.
We have experienced price increases in Singapore too, but thankfully not at such magnitudes. But we have to acknowledge that inflation has affected all Singaporeans. Families need to spend more when they go to the market to buy groceries, or when they have their meals in hawker centres and coffeeshops.
My residents in Bishan-Toa Payoh are affected too, including lower-income families, retirees and couples with young children and elderly parents to support. As MPs and Grassroots Advisers, we understand the pain that our residents are going through, and we feel for them and their families.
On top of imported inflation, we also face rising domestic cost pressures. We have a tight labour market and low levels of unemployment.
Real wages have been rising for workers across the board.
We are committed to raising the income and skills of our lower-wage workers – something I trust Members from both sides of the House will support.
Through the progressive wage model and other measures, the earnings of our lower-wage workers have increased faster than median wages.
But wage growth means higher business costs, especially in more manpower-intensive sectors from healthcare to food services. This has contributed to overall inflation.
Right now, inflation has peaked and is on a broad moderating path.
Core inflation fell from the peak of 5.5% in January this year to 3.0% in September 2023.
It is expected to edge down further to between 2.5% to 3.0% in December.
MAS expects the moderation to continue for 2024, with core inflation forecast at 1.5% - 2.5%.
If we include the impact of the GST rate increase in January, core inflation for 2024 is projected at between 2.5% and 3.5%.
Fortunately, the impact of GST increase is one-off. It should not cause an ongoing increase in the CPI in future years.
These are positive signs, but the Government remains cautious, because the global situation is uncertain and there are dark clouds on the horizon.
Further shocks to global energy and food prices could bring about additional inflationary pressures and economic slowdown.
There are many uncertainties in our external environment.
But what is clear is this: The Government understands the concerns of Singaporeans, and we stand ready to support Singaporeans where needed.
Sir, the Government has cushioned the impact of global inflation on households, by adopting an effective multi-pronged approach.
First, MAS moved early to tighten monetary policy significantly, substantially strengthening the Singapore dollar.
This has helped to contain imported inflation and preserve our international purchasing power.
Had we not done this, core inflation this year, as of 2023, would have been about 2.5%-points higher.
Second, we keep our economy competitive to create good jobs and sustain real income growth for Singaporeans.
Between 2017 and 2022, real median income grew by 1.8% per year. Real income at the 20th percentile – i.e. lower income households – rose even faster, at 2.9% per year over the same period.
Unfortunately, in the first half of this year median real income declined, even though nominal income rose slightly, as the Senior Minister of State for Manpower updated the House earlier today. This is due to the weaker economic outlook and elevated inflation.
It is understandable for median real income to have ups and downs depending on the overall economic performance.
But our experience in Singapore is that so long as our economy grows, remains competitive, real income can continue increasing for a broad segment of our workers.
In the long run, the key to sustaining real wage growth is to raise productivity and upgrade the skills of our workforce, to take on better jobs with higher pay.
The Government has invested in many initiatives to support businesses and workers in this transformation, and we will continue to do so.
Third, we ensure that basic needs like education, healthcare, housing and public transport remain accessible and affordable for all.
Everyone receives some help in these areas, but those with less receive more support.
It is a fair and progressive system.
Even as inflation is moderating at the macro level, we recognise that many Singaporeans feel the pressures from higher costs of living.
MPs from both sides of the House have raised this topic in Parliament, reflecting the concerns of our residents.
To our fellow Singaporeans, the Government hears you, and understands your worries.
That’s why we have been doing more to support Singaporeans – to cushion the impact of rising prices.
We review our support regularly, and step in to enhance it when necessary, to provide additional support, especially for lower- and middle-income families.
The Government enhanced the Assurance Package in Budget 2023.
As Members will recall, 2022 saw the fastest rate of increase in prices since 2008, with consumer prices going up by 6.1% compared to 2021.
To help households cope with this increase, the Government enhanced our support, from the $6.6 billion announced at Budget 2022 to $9.6 billion.
This way, we fulfilled our commitment to offset additional GST expenses for at least five years for the majority of Singaporean households, and for about 10 years for the lower-income households.
Recently in September 2023, the Government announced a $1.1 billion Cost-of-Living support package. This includes a $800 million enhancement to the Assurance Package, bringing it to over $10 billion.
Singaporeans will receive the additional support from these packages soon:
Every adult Singaporeans will get at least $200 in cash next month. Amongst them, about 2.5 million eligible Singaporeans will get $500 or $800 in cash.
And every Singaporean household will receive $500 in CDC vouchers in January 2024.
HDB households will also get more help in U-Save and S&CC rebates.
Many of my residents, including retirees who are staying in private properties, said they appreciate the additional support provided, and look forward to receiving the $800 special payment in December and the $500 CDC vouchers in January next year.
Through all of these packages, the Government will:
Fully cover the increase in spending by lower-income households this year due to inflation and the GST; and
Substantially cover the increase in spending by middle-income households.
The Government provided this assurance at Budget 2023 and we will honour it.
Sir, different families have different circumstances and challenges. The broad-based support that we provide will help every family, but we recognise that there may still be gaps for some households. For families who need more help, we have other supporting measures such as ComCare and the Silver Support Scheme.
We will continue to monitor the trends closely. As we have often said, we are prepared to do more to support Singaporeans should it become necessary. And we will do so in a manner which is fair, effective and sustainable, for both current and future generations.
Sustainability and fairness in provision of key services
The Government will continue to do our best to operate key services efficiently, and keep costs of providing services as low as possible.
In the case of water, PUB incorporates successful R&D efforts into its operations to reduce costs. For instance, the upcoming Tuas Water Reclamation Plant (Tuas WRP) will generate 80% of the energy it requires for used water treatment, compared to only 25% for the conventional WRPs. This will reduce energy costs, and is made possible through enhanced primary treatment of used water and co-locating with the Integrated Waste Management Facility.
Tuas WRP will also adopt membrane bioreactor technology to produce higher quality effluent which can be directly discharged to the sea. This avoids the need to construct a long and deep discharge pipe which could have cost an additional $650 million.
But despite our best efforts, the cost of providing key services will be affected by rising inflation, including higher energy and manpower costs.
So the unavoidable question for us is how we want to pay for the cost increases.
It is fair for these cost increases to be borne by the users and beneficiaries of these services – if not in full, at least partially, so that they are prudent in their usage.
For example, when the cost of providing electricity or water goes up, we do want users to find ways to improve energy or water efficiency and to reduce their consumption.
Even as some of these cost increases are passed on to users, the Government is mindful that we must keep basic services affordable.
For essential services like public healthcare, users only bear part of the cost. When costs go up, a large part of it is paid for by Government through increased subsidises, so that the bills facing users remain affordable.
When fee increases cannot be avoided, we also provide targeted and direct support for more vulnerable groups in society, such as lower income and retiree households. Examples would include U-save rebates and public transport vouchers.
Sir, it is always tempting to ask: why not have Government simply subsidise the services themselves?
But we need to remember that the cost increases do not magically disappear as a result.
They still need to be paid for, whether by taxpayers today, or by our children and grandchildren in the future.
We know from the experiences of other countries that subsidising petrol, electricity, or water directly causes problems.
First, it blunts the price signals and results in over-consumption because there is less incentive to improve efficiency and reduce wastage.
Second, households will get the subsidies whether they need them or not. Furthermore, the wealthier segments of society are likely to end up getting the larger share of the subsidies, because they consume more. That’s what happens when governments give out more subsidies for water and fuel. I am referring to direct price subsidies.
Who benefits more? It’s inevitably the higher-income groups with bigger homes and bigger cars, swimming pools and jacuzzis.
So, the way we design our subsidies is important.
Instead of subsidising the services themselves or designing tiered pricing schemes, we price the services fully, but give direct help to households that need financial assistance, in cash or vouchers.
This way, we can target more help to lower- and middle-income Singaporeans. It is more cost effective, and we can achieve better outcomes for society as a whole.
Sir, let me now respond to some of the issues that members have raised on water prices. I think Mr. Pritam Singh would agree with me that water security is a matter of national survival.
Today, Singaporeans enjoy an uninterrupted supply of high-quality water. This did not come by accident, but is made possible by long-term planning, innovation, and gumption.
Our founding Prime Minister Lee Kuan Yew famously said once: “every other policy has to bend at the knee for our water survival”.
And that is precisely what happened – one of the most remarkable achievements in modern Singapore.
We now have a sustainable and robust water supply system based on four National Taps. These are imported water from Johor, local catchments, NEWater, and desalination.
Each of these taps plays a vital role in ensuring a safe and resilient water supply. But each of these taps also faces rising costs.
To safeguard water security, we need to continue making investments to upgrade and maintain the system, while stewarding our limited resources.
Otherwise, the miracle that Mr Lee achieved will be short-lived.
Therefore, we must first right-price water to reflect its scarcity, and to encourage its sustainable and prudent use. I was listening carefully to Mr. Singh's speech earlier and I do not think Mr. Singh will disagree with me on this point. Water is priced to recover the cost of its supply and production, and to reflect the cost of producing the next drop of water from NEWater and desalination.
Even with active cost mitigation measures by PUB, the total cost of supplying and producing water has increased significantly.
Singapore cannot compromise on having a high-quality and reliable water supply. It is for our national survival. It is necessary to revise the water price now to catch up to these cost increases.
Deferring the price increase now will only result in a widening cost gap, that has to be made up by larger, more significant price increases in future.
To cushion the impact of higher water price in 2024 and 2025, the Government will provide eligible Singaporean HDB households an additional $20 per quarter of U-Save from January 2024 to December 2025, or a total of $80 per year for 2 years.
The additional U-Save rebates will on average fully offset the increase in utility bills for 1- to 2- room flats, about 80% for 3- to 4- room HDB flats, and about 65% for larger flats.
On average, this translates to 3- to 4- room HDB flats paying about $2 more per month, and 5-room HDB and larger households paying about $4 more per month.
Sir, the Workers Party also suggested having additionwal tiers for water price. As I mentioned earlier, we price water to reflect its scarcity value.
This means the same rate is paid by everyone, from the very first drop used by the household, so that all users take into account the scarcity value of water.
To discourage excessive use and to send a message to households on water conservation, we set a higher price for water consumption that far exceeds the average household consumption level.
And as Mr Singh pointed out, this threshold is set at 40m3 a month to accommodate most household needs. Over 96% of households consume less than this threshold.
Having additional tiers below 40m3 would mean that all households, rich or poor, pay a water price lower than its scarcity value for the first block of consumption. Or, if you have even more tiers, then, across different tiers, the water that is being consumed at the lower tiers will also include a subsidy to the wealthier families that consume more water.
This would distort households’ incentive to conserve water from the very first drop. It also means that the Government will have to subsidise everyone for water, not just the lower and middle-income, which is more costly and inefficient.
Instead, the Government’s approach is to price water fully, then we provide targeted and tiered support though our U-Save rebates to those who need it most. Lower-income families staying in smaller flats get a larger rebate as I shared earlier, which effectively translates into a lower price for them .
Businesses do not receive U-Save rebates. We do not subsidise their water or electricity consumption. Instead, we work with them, including helping our SMEs to be more energy and water efficient.
Sir, we also cannot have our cake and eat it. If the Government provides broad-based subsidies for all households through a multiple-tier water price, we cannot then also give out U-Save rebates for the same purpose.
The experiences of other countries have shown clearly that broad-based subsidies can lead to wasteful and ineffective outcomes.
And the Government is unable, after spending on these subsidies, to have sufficient resources left to provide more targeted help to those who really need it.
Mr Speaker, the same rationale applies to electricity. We have taken steps over the years to strengthen our energy resilience, to ensure supply stability and continuity, and this is an important task the MTI, EMA and the power sector has taken on.
The tariff as Ms Sylvia Lim mentioned, should reflect the costs of producing electricity from the first electron. Just as water, we want to price it correctly from the first drop.
And then, what we do, similar to water, is we then provide means-tested U-Save rebates to help families, especially lower- and middle- income families, give them more help, give them more support.
Sir, Miss Lim’s idea of time-of-use pricing is something which we do agree with, and that is why the Ministry of Trade and Industry (MTI) and EMA have also announced an initiative as Miss Lim had mentioned in her speech.
This is an accurate reflection of the actual cost of producing electricity during different periods of the day.
GST Increase
Sir, I will now turn to GST.
Overall, we have provided high quality public services to Singaporeans and we have achieved good outcomes for our programmes, and we were able to do so despite having an annual Budget that is less than 20% of GDP, which is much lower than most advanced economies.
Nevertheless, the Government’s spending needs are rising steadily, especially healthcare costs as our society ages.
There is therefore a need to raise revenues to pay for these higher expenditures. We have explained this in the House and also elsewhere many times.
The opposition has once again asked if we can defer the GST increase, especially given our higher-than-expected revenues. This too has been debated thoroughly in this House. I think it is important to set out once more the Government’s philosophy behind the GST system.
First, the GST is a critical component of our tax system, and we are raising the GST not for immediate funding needs, but for our medium-term needs.
This includes rising social spending in areas such as increased healthcare for ageing population, and more support for vulnerable segments of society.
Second, we design our GST system to take care of the lower-income.
In 2012, we made the GST Voucher scheme permanent.
The GST Voucher provides bigger offsets to lower-income households.
Coupled with the absorption of GST on publicly subsidised healthcare and education, we achieve an outcome where lower-income Singaporean households face a lower effective GST rate than higher-income ones.
As we had shared in this House previously, the bulk of the GST revenues are paid by higher income groups, as well as foreigners and tourists.
Third, we are able to defer the impact of the GST rises because of the comprehensive Assurance Package (AP) which benefits all Singaporean households.
The AP will defer the GST increase for the majority of Singaporean households by at least five years.
For lower-income households, we will defer the GST increase for them by about 10 years.
Since launching the Assurance Package in 2022, we have enhanced it twice to uphold this Government’s commitment.
Sir, we have gone through these points in this House before many times.
And while the Workers’ Party has consistently objected to the GST in previous years, we are glad that at the debate on the President’s address in April this year, the Workers’ Party has acknowledged the need for a 7% GST. And earlier I heard Mr Leong Mun Wai say he also agrees with the 7% GST.
But the Workers’ Party and the PSP should be upfront and consistent. It cannot have it both ways – objecting each time the GST rate needs to go up, but wanting to keep and spend the revenues from previous GST increases.
The only disagreement, based on my understanding, that the opposition now has, is to ask if we could defer the GST increase, because we have higher-than-expected revenues.
Sir, I ask the opposition to please look at the broader and longer-term fiscal trends. We may have had a good year this FY, but we do not have a structural surplus.
Our fiscal expenditures have been rising steadily and will continue to increase, and we are almost certain to face a funding gap in the coming years if we do nothing about it.
MOF had published an Occasional Paper earlier this year to highlight this trend.
We are expecting more social spending, in healthcare for our ageing population, and to better support vulnerable groups in Singapore.
Without the GST increase and tax measures announced in the last two budgets, we would not be able to close the projected fiscal gap.
We have been fortunate to have higher than expected revenues in FY22.
The Government did not plan its Budget on the basis that we will have these unexpected upsides in revenue collections.
These were either sentiment-based revenues which are volatile from year-to-year, or due to higher-than-expected economic growth.
And when we have these surpluses, the Government has made good use of them by flowing back these upsides to support businesses and households. We have done this during Budget and though off-Budget support packages.
We also allocated some of these surpluses into Funds for specific needs, such as the ComCare Endowment Fund to provide support to our lower-income families, or the Coastal and Flood Protection Fund to protect ourselves against sea level rises.
But we should follow through to raise GST to 9% on 1 January 2024. We can be confident that households will be amply cushioned by the Assurance Package, while we will have the higher GST rate in place, and can start to collect additional tax from non-citizens and visitors.
Mr Speaker, I will now turn to transport related issues, and I will start first with public transport and then I will cover some of the points raised regarding COE.
Sir, on public transport, we had a session in October. I think I answered a series of PQs. And I remember having supplementary questions from Mr Gerald Giam as well.
Sir, Mr Giam spoke about the profits earned by the public transport operators. I had mentioned this previously when we were discussing this issue and I explained to Mr Giam and the House that we have to look at the different types of public transport service. For buses, for example, the revenue that is being collected from commuters do not go to the operators. The revenue comes to Government and Government then pays the operators. We pay them a rate that was agreed through the bus contracting tenders.
And I also shared with Mr Giam and the House that over time, as we gain experience in doing bus contracting, we had been able to squeeze out more productivity improvements and reduce the payments and the rate of return for the bus operators.
For trains, the operators do collect fares to cover their operating costs. So the fares do affect their overall financials. And I shared during the October sitting that in the latest financial year, after accounting for Government grants, SBS Transit reported a loss of several million dollars for their rail operations, while SMRT Trains reported an operating profit of $6 million, which represents a profit margin of less than 1%.
So just to be very clear, these are the kinds of returns for the rail operations. And I also shared what we are doing – an ongoing process to try and improve the way we do bus contracting, to be able to squeeze out more savings for commuters and taxpayers.
Sir, Mr Giam had a second point, which he mentioned about whether we can nationalise our public transport system.
First, we take a look at where we are today, do we have a well-functioning public transport system overall? I think so. Public transport fares: If you look at the lower-income households in 2013, public transport expenditure is about 3.1% of their household expenditure.
It has fallen to 2.4% in 2022. So from accessibility, affordability, and also network improvement, system improvements, I think over time our current system has achieved good outcomes for commuters. This is also reflected in the overall survey results and ratings that commuters had given us.
Now, of course, I am not saying that there are no areas for improvement, there are and we will continue to look at what we can do to improve but overall, compared to many other cities, I think to be fair to our public transport operators and to our workers, our Public Transport Workers have been working very hard to achieve these outcomes. They have overall, I think, done a very good job. So what Mr Giam mentioned about nationalising and I think he calls it the NTC is actually not a silver bullet.
I hope Mr Giam can agree with me that nationalising is not an assurance or guarantee that outcomes will be better. Yes, you can take away the profit element if you nationalise and turn it into a Government department. But just because the nationalised entity does not make profits, does not make money, does not necessarily mean commuters will get better outcomes. I think we have to be quite clear. What we want in the end is to have better outcomes for commuters, to have a better transport system for Singapore.
Mr Giam also spoke about setting KPIs. We have seen from the experiences in other countries how this approach sometimes may not work. I mean, you look at history, the Soviet Union, under the previous central planning system, uses KPIs to try and track performance. And I think I do not have to elaborate further, I think, Mr Giam will agree with me. It is not a good outcome.
So KPI is not a substitute for the profit motive that we need and the competition that we need to spur the players to continuously improve and we are adding additional pressure on them to improve their productivity. The new fare formula has a productivity component. We will exert pressure on them through this fare formula productivity components to look at ways to continuously improve their productivity.
Sir, Mr. Giam also mentioned about the coverage of service. I understand and I think I did explain this to him previously, that when we do some of the changes to the bus services, some of the commuters will be affected.
I do recognise that, and my residents too have been affected by such changes. But the reason why we make these changes is because we have limited resources available to serve different needs, different groups of commuters, in different towns, including, I am sure, Mr. Giam’s constituency. There will be new developments, new BTO flats, and the residents there will need new bus services to connect them to the bus interchange or to the MRT stations.
So where do we get the resources to serve these new demands? We have to look at how can we reallocate some of the existing services. It is not a simple exercise. We do not do it in a very drastic way because we do recognise the impact. We do it in a very calibrated manner: we look at which are the bus routes that run parallel to MRT lines, and where there is an option for people to take the bus, go to the MRT station and then complete the longer part of the journey, the trunk service on the MRT so the bus then can provide better connectivity within the town as a feeder service.
Having said that, I have mentioned this to Mr. Giam before and I still make the offer to him today. If there are some specific areas of concern facing his residents, please do let me know, please do let LTA colleagues know and we will discuss and review to see what we can do to improve the situation on the ground.
Sir, allow me to now turn to COE. I want to start by saying that we just had a session on this yesterday. I answered a collection of PQs. I think we took quite some time and I think Miss Hazel Poa and Associate Professor Jamus Lim were both present in the chambers.
I do not know whether they heard my reply yesterday, because some of the points that they raised seem to have reflected that they heard me but again, some of the points that they raised, they may have missed out, or maybe they have forgotten what I have said. Let me please have this chance to address some of the points that they raised.
Sir, I will start by actually thanking Associate Professor Lim for acknowledging that, you know, he raised many different ideas. There are all the different fancy ideas for improving the COE system, but actually in the end make a small difference. Or in his words, a “small dent”. And what he feels, if I heard him correctly, is that the more effective way is to do the smoothening of the supply of the COE. Sir, that is exactly what I said yesterday in my reply.
We are going to use the “cut and fill” method. Not “cut and paste” – cut and paste is what you do on Microsoft Word. We are going to do the “cut and fill” method where we cut the supply from the peak years and then we fill the troughs, the short-term trough years. So, by doing this we are able to reduce the peak-to-trough ratio and achieve the outcome that I believe Associate Professor Lim is also advocating for.
But I also, in response to Mr Saktiandi, gave a qualifier that we cannot overdo this because you are effectively borrowing supply from the future. These cars that we are now borrowing the COEs from are still on the roads. They have not yet been deregistered. So, if you overdo the “cut and fill”, it means that in the short term, in the short run, you do have many more cars and it could lead to congestion. So, therefore, yes, we are looking at ways to do more “cut and fill, and we have announced increases in quota for this coming quarter. 35% more than the last quarter for Category A, 35% more for Category B, 65% more for Category C. We are doing that, but we also need to be mindful of the impact if we overdo it.
But I do thank Associate Professor Lim for actually agreeing with us that this is the way, this is the most effective way to be able to deal with these concerns that we see in the COE market.
Sir, Associate Professor Lim also spoke about whether we could, if I heard him correctly, ban the Private Hire Cars from COE bidding. And I think what he meant was then to have a separate category, because you cannot simply just ban them. I mean, there is genuine demand for these cars, so you cannot just ban them. I think what you meant was to have a separate category that they do not have to participate in the COE bidding with the Category A and B – there is a separate category for Private Hire Cars (PHCs).
Sir, I explained this yesterday that of course conceptually, it is not unthinkable to do something like this. But the trade-off is this: when you create a new category for Private Hire Cars, the supply for the COE does not magically appear. We still have to look for where to reallocate the supply of COEs to put into this new category. We are not talking about a magical solution where suddenly I have new supply coming in. So if we accept that point, Sir, then we are looking at a reallocation from Category A and B where we create this new category. And when we do that, as I explained yesterday, it is difficult to ascertain at what level of the supply should you shift into this new category because the Private Hire Car market is still evolving. And there are fluctuations from quarter to quarter, as we can see from the data.
So if you allocate too much, you shift too much, it will actually affect the supply of COEs in Category A and Category B and that will cause prices to spike even further. I think Associate Professor Lim understands this point. But if you do not allocate enough, you do not shift enough, there could be a problem for the Private Hire Cars and which will in turn affect the drivers and commuters. So this is something that I think we have to be quite careful. But Sir, I did mention in my reply yesterday that we are studying, whether there are other ways to address this concern, maybe not through the COE system but whether there are other ways, taking into account the reality that Private Hire Cars do travel more on the roads, a point that Associate Professor Lim also mentioned. But they also serve a useful role in society for commuters to meet their point-to-point journeys.
Sir, Associate Professor Lim also mentioned about pay-as-you-bid.
Sir, this is not going to give a different outcome from the current system. Let me explain: our current system is open bidding. This is not a close bidding where I do not know what people are bidding and then I just go into the bid without knowing what other people are bidding. The COE system is actually online. You go in, you can see very clearly what other people are bidding and you decide then how much you want to bid based on your willingness to pay, and you look at where that bid price is right now and whether you are willing to pay more than that to be able to secure a COE. So, whether we do pay-as-you-bid, or we do the current system, the outcome I think will be the same.
The second point that Associate Professor Lim mentioned was: can we use OMV instead of other criteria to determine COE bidding.
Sir, we already have Category A and Category B to sort of proxy, measure some of the kind of cars that people are buying. It is not a perfect correlation, of course, but many of the cars in Category A do have a lower OMV compared to the cars in Category B. So, I think, to some extent this already achieved the purpose of being progressive, or more importantly, Sir, we have the ARF. So, car ownership is progressive. The COE system has some elements of progressivity. But beyond that, if you look at the car ownership policy as a whole, the ARF is the other tool, and perhaps the more effective and more direct way of having a progressive car ownership policy.
We only very recently in Budget 2023 raised the ARF for luxury cars. And yesterday I answered a question that after doing that, the number of luxury cars, responding to the price signals, the policy signals, actually have come down. But I go back to my earlier point that Associate Professor Lim mentioned as well that he recognises that all these fanciful ideas are just going to have a small dent, in fact, I will say a very small dent and this is not going to solve the fundamental issues and he agrees with us that the more fundamental approach, the better approach is to look at how we can do more smoothening of the supply using the “cut and fill” method which we are already doing.
Sir, let me now turn to some of the points that Miss Hazel raised. Unfortunately, she is not in the chamber right now. But Miss Poa asked whether we can have a 0.25 growth rate for Category D. I think this is similar to the question that the Leader of Opposition asked yesterday, and Mr Murali Pillai also raised in November last year.
And as I explained yesterday in the House, we have to look at the usage of the motorcycles. It is similar to how Private Hire Cars are being used, because it can be dual-use; people do use it for their personal use, and also use it to do business, unlike Category C, where it is predominantly used for business needs.
But I do acknowledge the concerns that Mr Singh, Mr Murali Pillai, and I think Miss Hazel Poa had raised, which is that the buyers of motorcycles tend to come from more lower-income households compared to car buyers. I mentioned this in my reply yesterday, and that is why we have lower ERP charges, we have lower ARF for motorcycles.
And we will look at whether there are other ways to address this concern to reflect the intent of what Mr Singh, Mr Murali Pillai, Miss Hazel Poa would like to achieve but I do not think we should go down the path of having a growth rate because they are quite different from Category C in that regard.
Ms Poa also asked about the point-based system. And by this, I think what she meant is whether we can do the allocation by giving certain weightage, certain categories of families a bias. Sir, I understand where Ms Poa is coming from, but I think if you think about it in practice, if you are going to implement this idea, it is not so simple in practice.
There are many Singapore families who would have dependents whether a young child, elderly parent, and it will be very challenging to determine who is more deserving of a car. How would the person sitting at LTA be able to decide who is more deserving, when all families would have different circumstances and needs?
Instead, our approach is to make mass public transport affordable, accessible and convenient. And also to complement this with shared point to point transport services, including taxis, private hire vehicles, car sharing, and through this multi pronged approach to be able to better meet the needs of our Singaporean families who may not need to own a car all the time and use it all the time, but they may need it during certain times of the week, to bring the family out for an outing, to send their parents for medical appointments. So if we can create more options for them to be able to use the car without necessarily having to own the car, I think that is one way in which we can help more families.
There is also for certain categories of families and individuals like, for example, persons with disabilities who need a car for their livelihood, we do have a Government scheme called the disabled person scheme, where we waive the ARF, we waive the COE, and this is something which we do on a very targeted basis to help these individuals.
Sir, the point about foreigners or families who own multiple cars, I have addressed it yesterday. But since Ms Poa brought it up, allow me to explain this point again. I shared yesterday that foreigners win about 1% of the bids for Category A, 4% of the bids for Category B and if you combine this with what I said earlier about the bidding system, they are not going to be the ones who are going to influence the bid price.
Likewise, families who own multiple cars, they make up 5% of the total number of resident households. So again, the numbers are not so significant, and we do not think that these two categories of buyers – foreigners and families that own multiple cars, will be the ones who end up driving the COE prices.
So because of that, introducing something like the ABSD may sound good, may make us feel “shiok” for a short while, but it is not really going to solve the problem. If our concern is about cost of living and high COE prices, it is not going to solve the problem. What Associate Professor Lim mentioned earlier and what we are doing, doing the cut and fill, that is a more direct way of solving the problem.
Sir, I just want to end off on one final point on COE before I move on to my next topic, which is what Mr Leong Mun Wai mentioned. I think he may have misunderstood my data. Yesterday I shared that the percentage of households that own cars had fallen gradually over time from 40% to about one third now and maybe just allow me to clarify, Sir, that this trend has been happening not just in recent times when COE prices are high, but even during the time when we have plentiful supply and COE prices were much lower.
So even then we see this shift. It could be a generational shift. Maybe more people now may not feel that driving is necessary or like what I mentioned earlier, they may not need to own a car, they can just use the services of a car from time to time when they need it.
Or it could be that maybe they find that the public transport system has been improving over time and they will prefer to use public transport, which is also more sustainable for the environment. Whichever the case may be, Sir, this trend has actually been consistent whether COE prices are high or low. So I thought I would just clarify the point that Mr Leong mentioned.
Government’s efforts in alleviating cost-of-living pressure
Mr Speaker, we have been able to keep our public services and finances sound through this combination of not delaying necessary adjustments while providing needed support to households.
Even in years when inflation is high, we still have to raise some charges and taxes, because it is necessary to do so.
It is not prudent or sustainable for the Government to avoid or subsidise every cost increase. Doing so will entail either a high burden on current and future generations of taxpayers, or a deterioration of service standards.
It is not the responsible thing to keep kicking the can down the road, or to avoid introducing painful but necessary increases.
We may make some people happy by pursuing such policies, but when the financing gap starts to accumulate over time, we will make everyone worse off because it will be even more painful to fix the problem later.
Importantly, the Government’s policies should be seen together, and not in isolation or piecemeal. The different policies and measures work together as a whole to collectively help ease the cost pressures on Singaporeans, without undermining our fiscal sustainability.
This is why I support the proposed amendment from Mr Liang Eng Hwa, because he is right that the Government should continue pursuing policies that together lower cost of living pressures on Singaporeans and their families.
And our policies need to be sustainable, because we care for Singaporeans now and also for our children and grandchildren.
I also applaud and encourage the community and kind-hearted sponsors to continue stepping forward with philanthropic donations to help support vulnerable groups in society.
There are many ground-up initiatives, including from the NTUC and community groups, which provide local-level assistance to vulnerable residents on top of Government subsidies, as you have heard from some of our MPs earlier.
The CDC Mayors and many of our grassroots advisers do this regularly with community partners and donors.
Community and corporations do their part alongside the Government in a whole-of-society effort to support the vulnerable.
This is our Singapore way, not just enabling ourselves and our family to do well, but also helping to support others in society, so that we can progress together and leave no one behind.
Conclusion
Mr Speaker, the reality is that global inflation will remain elevated for some time to come.
We cannot fully insulate ourselves from these global forces.
Prices of goods and services will rise to reflect higher costs.
If we do what is politically convenient and prevent prices from rising, I am afraid we will create more problems:
Giving more price subsidies will benefit certain groups at the expense of others; in particular, we end up helping the rich more than the poor.
We will lose fiscal discipline and erode self-responsibility.
The fiscal deficit that gets created cannot be wished away, and the burden will fall on future generations of Singaporeans.
And in the long run, it will hurt Singapore and Singaporeans.
Overall, the Government has moderated considerably the impact of inflation on Singaporeans, especially for lower- and middle-income segments. And we have done so on a sustainable basis, spending within our means and helping as many people as possible.
We will continue to monitor the need for more targeted support if inflation or economic outlook worsens.
We will do so while maintaining discipline in ensuring that our interventions are fair, sustainable, and effective.
Sir, we welcome the Leader of Opposition’s call for a review to make sure that our policies are fit for purpose in a new era of higher prices. The Government has been renewing our policies, including as part of Forward Singapore. Some changes have already been announced, for example the Majulah Package for young seniors and the new housing model. Existing schemes such as Workfare are being enhanced and new initiatives have been proposed, such as the reemployment support. We welcome further inputs into these policy reviews as we chart our way forward. But not all the ideas would be feasible or will achieve our shared goals of a fairer and fiscally sustainable system.
To members of this House and to all Singaporeans, I want to assure you that this Government will be responsive to the concerns of our people, and we will continue to do our best to mitigate cost pressures for businesses and families. And importantly, we will do this in a way that is responsible and right for Singaporeans, today and tomorrow. Thank you Sir.