Government does not make money from ERP? Yeah right.

23 June 2008

The headline in the Straits Times newspaper screamed “Govt doesn’t make money from ERP”. I cringed.

As I expected, the points raised in the article were mostly hogwash.

The article begins with Labour Chief Lim Swee Say’s lament that he pays a hefty sum on ERP charges because he passes through many gantries to and from work. Apparently, Mr Lim was in the midst of making the point that ERP exists solely to control road congestion and not to enrich government coffers.

I hope Mr Lim’s public sector salary compensates him adequately for this and prevents him from having to bear unnecessary financial sacrifices.

Mr Lim said Transport Minister Raymond Lim had told Parliament previously the Government does not make any money from the ERP increase, the alleged reason being that it will collect $70 million a year from the ERP increase, but will lose $110 million due to the 15 per cent reduction in road tax for cars, motorcycles, taxis, and commercial vehicles starting from July 08.

At this point, I realized that my cringe upon seeing the headline of the article was totally justified.

First and foremost, you cannot justify that the government is not making money from the ERP increase simply by using a reduction in profits from road taxes to offset the ERP increase. That is hardly logical. To fairly assess whether the government is profiteering, you have to take into account the total government revenue from transport, which would include things like COE and petrol duty. You would also have to study whether the government is using the revenue from transport to build better roads and infrastructure, and make travelling easier for drivers and commuters.

Secondly, the suggestion that the reduction in road tax starting in July would more than offset the increase in ERP charges might not gel with the everyday experience of drivers. For example, according to the calculations done by a Sammyboy Coffeeshop forummer using LTA’s Onemotoring.com website, the annualized reduction in road tax for a 1600cc car would come up to around $130. However in one year, can a driver realistically expect his or her ERP charges to go up by LESS than $130 due to the latest round of revisions? Given that ERP rates for 32 of 65 gantries will increase by between 50 cents and S$2.00, that may not be a realistic outcome for many drivers.

I wonder how the Government came up with those figures.

My view is that if the Government keeps increasing the number of ERP gantries, it ultimately becomes counterproductive, because commuters will not be able to avoid those gantries without incurring substantially higher fuel costs due to taking longer routes. In the end, the result is the same: commuters are forced to pay more, whether in terms of ERP charges, or in terms of fuel usage.

If and when that happens, the congestion will likely return to previous levels. What then would the Government do? Keep increasing the number of gantries ad infinitum?

Clearly, a more lasting solution has to be found.