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HomesingaporeFreeze in future fare hikes not necessarily 'without consequences', says Transport Ministry

Freeze in future fare hikes not necessarily 'without consequences', says Transport Ministry

SINGAPORE: One should not pretend that deferred public transport fare increases can “somehow be expunged and magically disappear”, or assume that future fare increases can be “frozen without consequences to our public transport system”, said Acting Minister for Transport Chee Hong Tat on Tuesday (Oct 3). 

Mr Chee was responding to questions posed by Members of Parliament (MPs) about whether the Public Transport Council (PTC) would stave off future fare increases, following the latest bus and train fare hike which will see adult commuters pay 10 to 11 cents more per journey from Dec 23.

In last month’s announcement of the upcoming fare hike, the PTC stated that this year’s increase of 7 per cent is only a portion of the maximum allowable fare adjustment quantum of 22.6 per cent, comprising last year’s deferred increase of 10.6 per cent and this year’s 12 per cent.

The increase of 7 per cent means that the remaining 15.6 per cent will be deferred to future fare review exercises. 

MP Louis Chua (WP-Sengkang) had asked whether the PTC plans to expunge the deferred 15.6 per cent fare increase. 

MP Don Wee (PAP-Chua Chu Kang), in a question filed for a subsequent sitting, asked whether the PTC can “impose a moratorium” on future fare increases given that the public transport operators have been profitable over the past years. 

“Making such populist moves will further enlarge the funding gap over time which must be supported by higher government subsidies funded by taxpayers. It is not the responsible thing to do,” stated Mr Chee in parliament.

“We need to be clear that government subsidies are ultimately borne by current and future generations of taxpayers.”

To cover the deferred fare adjustment quantum this year, the government will provide S$300 million (US$218 million) of additional subsidies – S$100 million more than the previous year. This amount is on top of the S$2 billion annual subsidies to fund bus and train services, he added.

The cost of public transport infrastructure is also fully funded by the government. 

Related:

Public transport fare hike: Adults to pay 10 to 11 cents more per journey from Dec 23

Public transport fare hike is small compared to the increase in operating costs, analysts say

“NOT SOUND” TO EXPUNGE DEFERRED FARES, FREEZE FUTURE FARES 

Explaining that the fare formula reflects “real cost increases” in the economy, including energy costs and wages, Mr Chee said the formula allows fares to be adjusted in tandem with these cost drivers, rather than changes in operators’ actual costs.

As the formula also includes a “productivity contribution”, operators are incentivised to look for continuous productivity improvements to reduce their costs.

Ultimately, the formula avoids operators’ costs from being “directly passed on” to commuters, while allowing commuters to benefit from productivity savings from the operators. 

Mr Chee told the House on Tuesday that Mr Chua and Mr Wee’s suggestions are “not sound”, because these proposals would affect the longer-term reliability and financial sustainability of the public transport system, “to the detriment of Singapore and Singaporeans”. 

“If the deferred fare amount is expunged, as Mr Louis Chua proposed, or if fares are frozen for future years as Mr Don Wee suggested, it does not mean that these costs of running the public transport system will simply disappear into thin air,” he said. 

“I would like to ask Mr Chua and Mr Wee to clarify whether they are proposing for the operators to absorb this cost, or for taxpayers to bear a larger cost burden to provide higher government subsidies on a permanent basis?” he added.

“If it is the latter, they should elaborate how such a move will be funded ever year and whether they are proposing for Singaporeans to pay additional taxes to do so? … If it is to ask the public transport operators to absorb the costs, we need to consider how this will impact their financial sustainability over time, and in turn affect their ability to provide accessible and reliable public transport services.” 

Mr Chee also pointed out that bus and rail services are not operating at high profitability. 

Bus services are overall operating at a loss “and that is why the government needs to provide about S$1 billion in subsidies for buses every year”, he said. “Expunging the deferred fare or freezing future fare increases will result in larger losses and higher government subsidies.” 

With rail services, after accounting for government grants in the previous financial year, SBS Transit reported a loss of several million dollars for their rail operations, while SMRT Trains reported an operating profit of S$6 million, which represents a profit margin of less than 1 per cent, he added. 

ENSURING AFFORDABILITY 

Mr Chee highlighted that the PTC and government are “mindful” that fare increases affect different commuter groups differently. 

A lower increase will be implemented for concession card fares for students, seniors, low-wage workers and people with disabilities, the PTC announced in September.

Fares in this category will go up by 4 to 5 cents per journey, depending on the distance travelled. Concessionary cash fares for bus rides will increase by 10 cents. 

Heavy public transport users who belong to concessionary groups, such as students, seniors, and full-time National Servicemen, will see prices of hybrid monthly concession passes reduced by up to 10 per cent. 

The price of monthly concession passes for people with disabilities will be reduced from S$64 to S$58, similar to that of seniors. Lower-wage workers will be able to use a new workfare transport hybrid monthly concession pass priced at S$96.Changes to monthly concession passes will benefit about 60,000 existing and expected new monthly pass holders. Existing hybrid monthly pass holders will save up to S$9.50 per month.

“The PTC will continue to ensure that fare adjustments each year are affordable. In each future (fare review exercise), the PTC will assess the cost increases as reflected by the fare formula, the deferred fare amount from previous years, as well as the impact on affordability for commuters, before deciding on the fare increase to be granted for that year,” said Mr Chee.

“And when the opportunity arises, the PTC will consider whether it is possible to lower the total deferred fare amount so the gap will gradually reduce over time.”

In a supplementary question later raised by Mr Chua, the MP suggested that the current deferred increase and future increase in fares would have a “snowballing effect”. He then proposed “moderating” the level of fare increase rather than expunging it.

Mr Chee acknowledged that he and Mr Chua may not disagree so much, but pointed out that the PTC doesn’t simply comply with the fare formula’s maximum allowable fare adjustment.

“They will consider the impact on commuters, on affordability. And then after that, they will exercise judgement in terms of what is the level (of fare increase) to set and how much it would differ (from the maximum allowable adjustment),” he said.

Mr Chee also highlighted that deferring fare increases essentially means the government tops up the funding gap, such as with this year’s additional S$300 million in subsidies.

“If we don’t find ways in subsequent years to … gradually reduce this gap, and if we expunge it, what it means is that S$300 million will remain as a permanent subsidy. And it will add on to the existing subsidies that we already provide,” he explained.

“So this will increase the burden on taxpayers.”

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