Why Are Singaporeans Double-Paying On Fares and Taxes For The Profits Of Transport Operators?

Since the transport fare increase was announced, I have been researching, and have undergone a quick crash course on public transport financing. Turns out the key to understanding the transport fare hike is to look at the broader picture on the financing structure.

The key questions to ask is – what is the role of public transport? Should public transport be profit-oriented or subsidy-driven? And if so, how much should the subsidy be? These questions have often been asked, but what are some of the tools that can help us to understand this better?

The Concessions Are Not Concessions

First off, let’s look at the just-announced transport fare increase. Specifically, I would look at the concessions announced, as this is the crux of where all the fanfare of the announcement can be dismantled, as most observers have also noticed. The Public Transport Council (PTC) has announced “a new monthly unlimited travel pass for adult Singaporean and permanent resident commuters (priced at $120)” and “a new monthly unlimited travel concession pass for senior citizens (priced at $60, a 50% discount to the adult monthly travel pass)”.

But are the concessions enough, or actually, relevant? Ironically, it is The Straits Times which had revealed that it is not, as “six out of every 10 commuters say they will not get the new $120 monthly adult travel pass that is being introduced in April, because they do not spend that much on public transport“. It added that, “fifty-eight of the 100 commuters polled yesterday by The Straits Times said they spend between $50 and $110 a month”. For the senior citizen fares, depending on how far you travel, it would cost roughly half that of the adult fares. Since the new concession pass for senior citizen is “priced at $60″, or 50% of the monthly adult travel pass, this would mean that the concession pass for senior citizens would be more expensive for most commuters than than if they pay individual fares instead. Another anomaly which wasn’t mentioned is this – for tertiary students, their concession pass cost $97, so if more than half of Singaporeans wouldn’t spend more than $100 commuting, this $97 concession pass would actually be “un-concessionary”, wouldn’t it?

If you look at the Macmillan Dictionary, it defines “concession” as “a reduction in the price of something for some groups of people such as students“. Longman defines it as “a reduction in the price of tickets, fees etc for certain groups of people, for example old people or children“.

So, if the concession passes do not offer any cost savings for most Singaporeans, it is hardly the case that these new travel passes can even be called “concessions”. In fact, what this means is that if these concessions wouldn’t be useful to Singaporeans anyway, then the 3.2% fare increase will actually hit the majority of Singaporeans. It was announced that, “with effect from 6 April 2014, adult card fares for buses and trains will increase by 4 to 6 cents per journey”. But when you compare this with fare increases over the past decade, the 4 to 6 cents actually represent the highest increase ever. What’s more, Leong Sze Hian had also pointed out that, “for the shortest distance fare – the increase of 4 cents from 73 to 77 cents, is an increase of a whopping 5.5%“.

What this means is this:

  1. First, Singaporeans will have to pay the highest ever increase in fares in 2014.
  2. Second, because the “new” concessions will not provide a “reduction in price” for most Singaporeans anyway, this “concession” instead becomes a lock-in mechanism instead. For Singaporeans who do not travel as often but are led to believe that the “concessions” will offer them a reduction, they would in fact pay more than they should and get locked-in to pay for additional costs which they would have otherwise not incurred.

Thus the Worker’s Party was right when they said that, “the concessions, however, should not be used as a sweetener to make the latest fare increases palatable“. The Worker’s Party had actually incisively decoded what the concessions really meant.

Why Did The Government Approve The Highest Transport Fare Increase Amid The Lowest Increase In Real Wages?

When you have finally analysed it thoroughly, the question that I asked myself was – how does the government even have the cheek to approve the highest fare increase ever when Singaporeans have seen the lowest real wage growth in recent years, and when the majority of Singaporeans are unable to cope with the cost of living in Singapore?

Over the past five years, from 2008 to 2012, Singaporeans have actually seen the lowest real wage growth – in fact, Singaporeans have seen a negative real basic wage change (excluding Employer CPF) of -0.3% (Chart 1).

Transport Article Chart 1

Chart 1: Ministry of Manpower Income (2012: -0.1%)

It was also recently found that in a survey by the Singapore Polytechnic that, “the rising cost of living in Singapore … is a major concern for the young population“. CNBC had also reported that, “Singapore was recently ranked as the world’s seventh most expensive city in Expatistan’s Cost of Living index”. Mercer had also ranked Singapore as the 5th most expensive city to live in, in the world.

And hence, it is of little consolation when the PTC had said that, “in deciding on the 3.2% fare increase for the 2013 Fare Exercise, (the PTC) noted that this is significantly lower than the 4%-5% wage increase in 2013, and hence is keeping to the objective of ensuring that fares would remain generally affordable for commuters.” However, what the PTC had conveniently not mentioned is also that the inflation rate in Singapore is also one of the highest in recent years, which means that any real wage increase is considerably eroded, after accounting for that.

Apparently, both SBS Transit and SMRT had applied for a fare increase of 6.6% but the PTC Chairman Gerard Ee had said that, “clearly, 6.6 per cent in one go is very high, and so, to minimise the impact on commuters, it was obvious to us that we should just do part of the increase this year, and roll-over the rest’. On the surface, the magnanimity of the PTC was something that Singaporeans should be grateful for, but as Leslie Chew had pointed out, “by increasing the fare hike in stages, it is in fact costing commuters much more“:

Leslie Chew Transport Fare Increase Facebook Posting

But the question is – if the current price increases might be unjustified, and if the concessions are unreasonable, what is a good level of subsidy then?

Singaporeans Pay Nearly Enough in Transport Fares To Cover The Entire Operating Expenses of SBS Transit and SMRT

According to the Comparative study of the public transport financing and of the fare policy in different metropolitan areas of Europe, for monthly season tickets in some European countries, the discount on the single ticket is between 26% to 45%. However, for the new monthly adult and senior citizen travel concession pass in Singapore, this “concession” is actually more than what we would pay if we had used single tickets – or between 110% to 240% the monthly transport expenditure of Singaporeans – which is ridiculous, when seen in this light. For the concession pass to offer any significant real concessionary benefits, the price of the travel pass should be heavily reduced, by at least half.

It was also stated that, “in all the areas analysed there is a strong component of public financing (subventions) in the cost structure of the public transport system. The operational costs covered by the fare revenue amount to less than 50% in all metropolitan areas.” Indeed, when you look at the farebox recovery ratio, or the “proportion of the amount of revenue generated through fares by its paying customers as a fraction of the cost of its total operating expenses“, you would see that the Singapore transportation system has one of the world’s highest farebox recovery ratio, at 125% for SMRT, while most European countries would have a ratio of below 50%.

What this means is that the fares that Singaporeans pay would be just about enough to cover for the total operating expenses for SBS Transit and SMRT to run their operations. And if you look at fare revenue collected by SBS Transit (Chart 2) and SMRT (Chart 3), you would see that it has been rising over the years.

Transport Article Chart 2

Chart 2: SBS Transit Annual Reports (2012: $739.5 million)

Transport Article Chart 3

Chart 3: SMRT Annual Reports (2013: $842.5 million)

Not only that, the PTC reported that, “the overall 3.2% fare increase translates to a fare revenue increase of about $53.5 million a year for both public transport operators. The increase in revenue for SBS Transit and SMRT are $36.0 million and $17.5 million respectively, and when accounting for their one-off contribution to the Public Transport Fund of only $7.2 million and $4.3 million respectively, they would still see an increase in fare revenue of $28.8 million and $32 million respectively, on top of what they are already earning. Isn’t it rather peculiar that in spite of the slew of concessions that were introduced, the transport operators would still continue to higher fare revenues – which does contradict how concessions should actually have an effect of reducing fare revenue, doesn’t it?

This also means that year after year, Singaporeans are paying more than enough in transport fares to cover for the total operating expenses for the transport operators. Thus when Channel NewsAsia makes comments such as, “an expert has said the burden of public transport fares will be passed on to regular-paying commuters if the adult and senior citizens’ travel passes announced on Thursday are made cheaper“, this is erroneous because Singaporeans already foot almost the complete burden of the expenses for public transport operations in Singapore. By having a farebox recovery of ratio of 125%, Singaporeans would be paying 25% more in fares, than what is required to run the public transport system in Singapore.

Which then begs two questions:

  1. If Singaporeans are already paying enough in fares to run the public transport system in Singapore, what “declining” and “loss-making” business is SBS Transit and SMRT talking about, and why do they need to apply for fare increases?
  2. If Singaporeans are effectively subsidising almost the total operations of the public transport system in Singapore through the fares we pay, then where is the government’s role in financing public transport in Singapore?

So, when SBS Transit claimed in their application to raise fares that, “rising costs (have) a significant impact on bus and rail operations … and (continue) to be loss-making in 2012 and 2013 … (and that) their rail business has also been declining and it went into the red for the first nine months of 2013 due to rising costs”, and when SMRT claimed that, “the bus business has been loss-making for the past few years and losses may continue  … (and that) the profit level of the train business has also been weighed down by rising costs, maintaining an ageing MRT network, and expenditure for mid-life refurbishment”, this is a gross misrepresentation when the overall profits of SBS Transit (Chart 4) and SMRT (Chart 5) has been in the millions every year. In fact, since 2000, SBS Transit and SMRT have earned accumulated profits of $650 million and $1.9 billion, respectively.

Transport Article Chart 4

Chart 4: SBS Transit Annual Reports (2012: $25.4 million)

Transport Article Chart 5

Chart 5: SMRT Annual Reports (2013: $110.2 million)

In fact, if SBS Transit and SMRT would like to make such hearty claims that their bus operations are making such a loss that bus fares would need to be increase, Singaporeans should be similarly able to demand that since train operations are making such hefty profits that we should see drastic reductions in train fares instead, but why are we not seeing this? Why are such discrepancies and double standards allowed to exist? Who exactly is playing the role of the regulator of public transport in Singapore?

To be fair, Singaporeans are not saying that fares shouldn’t increase, but what they are saying is that fares should ONLY be increased, when other relative aspects are carefully considered. As it is, if the real wages of Singaporeans are already depressed, and declining, and if fare revenue has been increasing every year, while profits have been in the millions annually and accumulated billions, then is there a justified rationale for fare increases to be allowed? Furthermore, if Singaporeans have seen the lowest growth in real wages, and negative growth in recent years, matched by the highest inflation rates, should the government approve the highest fare increases in light of this disparity?

On top of that, if SBS Transit and SMRT are making very healthy profit margins, why then have they represented themselves in such pitiful light, just so to increase their profits, when the livelihood of Singaporeans are truly a lot more pitiful than the transport operators are? Is the government blind to the claims of the transport operators and to the plight of Singaporeans?

Why Do Singaporeans Still Need To Pay Taxes When We Already Pay Out Of Pocket For Everything We Need? Why Are Singaporeans Double-Paying? 

Indeed, what is the role of public transport and what is the role of public transport regulators in this instance?

If you remember, Leong Sze Hian has reiterated many times that “the government does not spend a single cent on healthcare, HDB and CPF“, then is it also the case that the Singapore government doesn’t spend a single cent on public transport as well, since the fares that Singaporeans pay would almost finance the full operations of the transport operators? If public transportation is a “public” good, shouldn’t the government also subsidise for public transport in greater capacity? And if the government would not subsidise public transportation in more substantial ways, then why are Singaporeans paying taxes to the government for? In fact, why are Singaporeans even paying taxes to the government if Singaporeans are already financing public transport, public healthcare, public housing and our own retirement mainly from our own pockets?

Which then leads to the question – if public transportation is well, a public good, and if the taxes that we pay don’t go into financing our use of this public good, then where do the taxes that we pay go to?

In 2012, the Singapore government had spent $1.1 billion to purchase 550 buses for SBS Transit and SMRT. Earlier this month, it was announced that SBS Transit and SMRT will be rewarded “between S$2,000 and S$6,000 for every 0.1 minute” that the buses arrive on time. Perhaps Simon Sim had asked a most apt question, when he asked, “Government is footing the bill for concessions but price hikes goes to the company? So unless the concessions are not paid for by the government, fare increase makes sense? Or else, it’s double pay, one directly, the other via government (through taxes for concessions) to a private company?

In fact, Leong Sze Hian had succinctly pointed out that, “In this connection, don’t you find it rather strange and out of proportion – when we can spend more than $1.1 billion to help the transport operators – and yet increase fares to give an estimated increase in annual revenue of just $53 million to the operators?” So, why is it that the government is so willing to spend $1.1 billion for SBS Transit and SMRT and multiples of $6,000 to reward them but doesn’t see it fit to increase the subsidies directly to commuters to reduce their transport and concession fares?

The question then is – are Singaporeans paying taxes to increase the profits of SBS Transit and SMRT? If we are paying taxes, shouldn’t the taxes we pay go directly into benefiting Singaporeans? Actually, why are we double-paying into taxes, and then into transport fares, and higher fares for that matter!

Why Are Singaporeans Subsidising The Singapore Government To Run The Country Instead Of The Other Way Round?

In fact, the question on some peoples’ mind is – why didn’t the government reduce transport fares, on the rising cost of living and depressed wages? Why did the government agree to the highest fare increase in recent times? And if the taxes that we are paying are enough to pay for the extravagant profits of SBS Transit and SMRT, then why are we even paying fares?

As Leong Sze Hian and I have written about since the start of this year in our 10-part article on “How Much Tax Are Singaporeans Really Paying?”, we have found that Singaporeans actually do pay as much as the Nordic countries do in terms of taxes, social security/CPF and out-0f-pocket expenditure for basic essentials such as healthcare, education and retirement, but what we receive back in return from the government in terms of social protection is actually the lowest. In fact, the Singapore government spends the least public spending, as compared to the other high-income countries.

As such, is there too much over-reliance on Singaporeans and in fares to run Singapore’s transporation system, especially in light of the massive salaries that goes to their CEOs? Is there too little that the Singapore government is doing to subsidise public transport in Singapore, given that Singaporeans pay as much as the Nordic citizens do, and the Singapore government gives back lower returns that the Nordic governments do, and that Singaporeans are actually double-paying into taxes and transport fares? There seems to be a heavily lopsided spending structure in Singapore, where the government seems to take minimal responsibility in running the basic services in the country, while Singaporeans are expected to prop up the system with their marginal wages.

Indeed, is Singapore the only country in the world where its citizens have to subsidise their government to run the country, when it should be the government who should be subsidising the citizens to have a basic decent standard of living? Has the system in Singapore become lopsided and are Singaporeans being made a mockery out of by the government? Yet, why do we take it sitting down quietly, and why we continue to self-talk ourselves into believing that things will be alright, even though we know they are obviously not?

The final question is – is the fare hikes in 2014 justified? No, it’s not.

  1. First, wages have not grown fast enough to warrant fare hikes.
  2. Second, the profits of the transport operators are very extravagant, and until we have a complete picture of how our taxes and fare revenue are being spent, and why the profits are necessary for the maintenance and upkeep of the public transport system, such high profits are irresponsible, in light of the diminishing value of the wages of Singaporeans.
  3. Third, the fare revenue that Singaporeans are paying are almost enough to cover for the operations of the transport operators. On top of that, we are paying tax as well. Singaporeans are double-paying into taxes and fares, without having a clear picture as to how our monies are being spent.

To fully appreciate the rise in transport fares and whether the rise should be accepted, we would need to look into other areas, such as the efficiency and cost-effectiveness of the transportation system. There are many research papers written on this, which would provide guidance to Singapore as to the optimal fare increase that should, or should not even take place. I would look into the synthesising the research in later articles.

*****

What do you think of the transport fare hikes? Do you want to speak up about it, or to hear what else can be done about it?

Together with MARUAH, Function 8 and Workfair, Empowering Singaporeans will be organising a Pre-Budget 2014 Debate to discuss these issues, and to propose budget recommendations to improve the livelihood of Singaporeans. Please do join us. More details of the venue and programme for the debate will be released in the next few days. We might be unhappy with the increase in fares – let’s look at what solutions there are and look at how we can advocate for change, whether to improve the current situation, or to change the system for the better.

Pre-Budget 2014 Debate

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12 comments

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  9. Ron

    Hey, this is a great article, although it is a long article. Thanks for uncovering the myths behind the increased transportation fares and the CPF.

    Indeed, we need a CHANGE, a REAL CHANGE! Please make the CHANGE on GE 2015 for a BETTER tomorrow! Roy, go for it! Reading your blog truly makes someone become awaken of what is really happening. Before it get worse, we need for a change! A change that will make Singapore a better place to live in, a place where one can excel, work better, happier. Also, the old, retires can get back their CPF to support their retirement.

    We look forward for a better future for our children, our elderly. A truly better Singapore which progress, which improves the life of the common people all over Singapore.

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