THE Land Transport Authority (LTA) recently announced it would lower the annual vehicle growth rate from the current 0.5 per cent to 0.25 per cent from February next year to January 2018.

That affects the Certificate of Entitlement (COE) quota for car ownership.

The reason given? "With 12 per cent of Singapore's total land area already taken up by roads, there is limited scope for any further expansion of the road network," LTA said.

Singapore's success in maintaining a largely low-congestion and efficient transport system is commendable.

And since car ownership and usage imposes costs on non-users - pollution, congestion, noise, to name a few - controls are justified.

Luxury car ownership is a form of conspicuous consumption which people indulge in as a display of wealth. Such goods should be taxed heavily, including through the COE, as they contribute to higher prices for consumers.

As for the external costs of car usage, these should be charged through petrol taxes or road pricing, like the electronic road pricing (ERP). Petrol in Singapore is more affordable than in many other countries.

Bloomberg ranked Singapore 11 out of 61 countries for petrol affordability. Only 4.3 per cent of average daily wages is needed to buy one gallon of petrol. Singapore's petrol taxes-to-price ratio is much lower than that in Australia, New Zealand and all European Union countries. There is thus scope to increase petrol taxes here. If that were done, there would be scope to not cut the COE quota, especially for low-end cars.

That, in turn, would allow more middle-income people, especially those with children, to own cars.

A good complement is an increase in the number of taxis. Singapore already has a high ratio of taxis per thousand population of 5.2, as compared to cities such as Amsterdam, Berlin, Hong Kong, Lisbon and Paris. However, this figure does not match that in cities such as New York (6.3) or London (8.5), where for-hire private services - included in the figures above - also play a significant role. The ratio is even higher in Dublin (10.58) and Washington (12.5).

During peak hours, commuters here may have to wait for 20 or even 30 minutes for a taxi, according to surveys published by the LTA. As the incomes of taxi drivers are not high, only above $2,000 a month in 2012, if the number of taxis were to go up, there should also be an increase in taxi fares. Most taxi passengers are middle- and higher-income earners. Time and convenience are more important to them. Most of them are willing to pay more in fares if availability improves.

If taxis were more available, that would persuade more people not to own cars. It would also make the unaffordability of high COE prices less annoying.

Another alternative for commuters would be to travel by public transport, which has even less external costs. But the inherent trade-off would be convenience and comfort. In this sense, taxis occupy the middle ground between efficiency and convenience. Still, if public transport were efficient and taxis readily available, the need for car ownership would be much reduced.

Guangzhou is planning to have 2,950 on-call taxis to supplement its on-the-road taxi fleet. The non-cruising taxis would be more expensive than the normal taxis. In the case of Singapore, such on-call taxis are not necessary, as more ordinary taxis would probably be sufficient. However, providing urgent booking at a higher fare may be desirable to ensure that important trips are serviced with near certainty.

On the other hand, the call by Guangzhou taxi drivers for higher fuel subsidy is counter-efficient. Petrol should be taxed, not subsidised. The Singapore Government should not go down such a path, no matter how populist it may be. Still, continuing public education is needed to maintain this happy situation here.

-- ST FILE PHOTO

by Ng Yew-Kwang and Yi Xin for The Straits Times

Ng Yew-Kwang is Winsemius Professor in Economics at Nanyang Technological University. Yi Xin is an economics student at NTU.