Measures to Dampen Inflationary Pressures or to Help Singaporeans Cope Given Higher Prices

Russia’s invasion of Ukraine has affected the food and pump fuel prices across the world, including Singapore. Given the increase in cost of living in Singapore, I explored with the Minister for Finance a suggestion to lower the petrol duty imposed on motorists that was increased in February 2021 to promote a greener environment in Singapore. The hon Minister felt however it would be better to provide direct help to those who are impacted as opposed to a general measure across the board. My question and his answer are provided below.

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Mr Murali Pillai asked the Minister for Finance with regard to the spike in pump fuel prices attributable to Russia’s invasion of Ukraine, the implementation of the carbon tax system and the push towards adoption of electric vehicles, whether the Ministry will be prepared to reduce or provide rebates to the petrol duty imposed on motorists or provide road tax rebates to motorists in the short, mid or long term.

The Minister for Finance (Mr Lawrence Wong):

…Next, let me respond to the queries raised by several Members on fuel duties and road tax rebates. We collect fuel duties and road taxes for revenue and also to price the negative externalities of vehicle transport, such as the impact on public health and the environment.

Fuel duties collected averaged $920 million a year over the last five years. The revenue from these duties and taxes adds to the pool of resources available for various programmes and subsidies that directly benefit Singaporeans. This includes spending on public transport, for which we provide significant capital investments, as well as operating subsidies to ensure an affordable and world-class public transport system.

Given the recent increase in pump prices, I can understand why some Members have asked to reduce or suspend fuel duties, or to provide road tax rebates. But doing so effectively amounts to a subsidy on private transport and will have counter-productive effects. Let me explain.

Fewer than four in 10 households in Singapore own cars and, amongst the lowest quintile, only about one in 10 do. Four in 10 is the overall but, if you look at the lowest quintile, the bottom 20% of households by income, only one in 10 owns cars. Such subsidies on private transport would, therefore, benefit a relatively small but generally better-off group.

Cutting fuel duties also means that some of the subsidies will flow back, in part, to producers and suppliers themselves, not just to consumers, as the pump price may not fall as much as the reduction in duty.

More importantly, such subsidies will reduce the incentive to switch to more energy-efficient modes of transport, which is a critical element in our plans for sustainable living.

I recognise that there are several groups like taxi and private hire car drivers and delivery riders, who are affected by the increases in petrol and diesel prices. Various taxi and private hire car operators have implemented temporary increases in fares to help cushion the higher fuel prices for drivers and to have consumers share the burden. They also have tie-ups with petrol companies to offer fuel at discounted prices to help drivers and riders manage higher fuel costs. And as I mentioned earlier, those whose incomes are impacted and are in need of financial assistance can approach the SSOs, the CCs or the self-help groups for more help.

Overall, the better way to help Singaporeans cope with the rise in petrol prices, as with inflation in general, is to provide them with the support measures that we have catered for in the Budget. Through these measures, we are extending concrete tangible help directly to Singaporeans to cope with their different areas of needs, including their utility bills, children’s education and daily essentials, and we are providing more targeted help for the lower-income groups.

Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, thank you for allowing me to speak. Sir, I have two supplementary questions for the hon Finance Minister.

May I ask the hon Finance Minister why he feels that it is not appropriate to calibrate downwards the petrol tax at this point in time, given the backdrop of the following facts.

First, when the hon Deputy Prime Minister announced the hike in petrol tax in February 2021, he pegged the reasons for increasing it as really to promote a green environment, not revenue.

Second, at the time when he announced the tax hike, the Ukraine invasion would not have been foreseeable. But at that point in time, he and the Government officers would have calibrated a certain behaviour pattern in terms of an increase in the fuel price and how much behaviour would have changed from that point onwards. In fact, since the announcement was made, the price was hiked by about 10%.

Third, we all accept that the war drove up the price. In fact, since 24 February 2022, when the invasion happened, to date, the price at the pumps has increased about 5%. So, why could we not calibrate downwards the fuel tax so that we have an optimal behaviour that was planned as at February 2021? That is my first question.

The second question is: if the Minister still does not intend to intervene, then when does he think is a proper time to intervene, having regard to the fact that a number of vehicles are used by fellow Singaporeans for their trades and businesses?

Mr Lawrence Wong: Mr Speaker, I think I had tried to explain very comprehensively why it is not a good idea to reduce fuel duties. Let me try again in light of Mr Murali Pillai’s three questions.

We collect fuel duties for both revenue as well as externality reasons. And the revenues generated are not small and they are used for a range of very important things, to subsidise many activities: public transport, whole range of things, amongst others.

So, we should think carefully about giving up these sources of revenue, particularly when we are facing considerable revenue challenges already and we had a long discussion in the Budget debate about all the revenue and fiscal challenges we face. That is number one.

Number two, as I mentioned just now, there are the considerations of who benefits from this. And as I have highlighted, only four in 10 Singaporean households own cars. In fact, four in 10 is for the average. For the bottom 20%, one in 10; for the top 20%, it is six in 10. So, in the end, the ones who benefit more are the better-off when you do something like that. So, it is that the best use of subsidies?

And then, thirdly, we will be moving in the wrong direction because fuel duties price in the negative externalities, as we all understand, to society and to the environment. In a way, you can think of them akin, in part, to a carbon tax on vehicles, because we do not apply carbon tax on fuel. Fuel duties are akin, in part, to carbon tax on vehicles. So, we are already moving in the right direction on carbon tax: to raise carbon tax, to accelerate our green transition and to achieve our net-zero target.

So, it will not be consistent as we move on that front to, on the other hand, reduce fuel duties. That is why, on balance, we think the better approach is not to intervene in this way. We are saying we will help people who are affected, we will continue to help them. We have been helping and we will continue to monitor the situation and, for those who need more help and if the situation worsens, we will certainly do more. But the better way of helping is not through a reduction in fuel duties. The better way of helping is to directly help those who are impacted through other means and we have these different means to help those who are impacted, be it households or businesses.