Should the ERP 2.0 system replace the COE system?

So, it's official. The satellite-based ERP system, ominously called ERP 2.0, will become reality come 2020, for a price of $556 million dollars. To add salt to the wound, it will be built by the consortium of NCS and Mitsubishi Heavy Industries.

Just in case you didn't know, those are the same people who designed and maintained our current ERP gantries, so you know it'll never break down, especially not when you want them to. We've already discussed some of the implications of this new ERP system before, but again, this brings up the hotly discussed topic of the cost of car ownership and car usage in Singapore.

What is the purpose of implementing ERP 2.0?

Officially, this second-generation ERP system is supposed to continue the work of easing traffic congestion in Singapore. The reason why we're moving to this system is because the existing gantry system is getting more and more expensive to maintain. That's the official reason. No mention of the fact that each gantry costs $1.5 million dollars, and that we went from 27 gantries to 77 gantries in past two decades since it was implemented.

But Singaporeans are also questioning if there are other agendas behind implementing ERP 2.0. Is it to reduce car usage as Singapore continues its mission to rely less on cars? Is it to just generate even more revenue for the government? Should the ability to track distance travelled, and thus the ability to tax road usage, mean that we can now take the opportunity to reduce the ridiculously high cost of buying a car?

Does it make sense to use ERP 2.0 to tax car usage in general? What about road tax and petrol tax?

Right now, you pay to drive your car in the form of road tax, according to the age of the car and the engine capacity of the car. This is a flat rate that is renewed every six months or a year. It may seem like a pretty hefty amount at first, but when you think about it, it's really only costing you $1 to $5 a day.

That's cheap. And really doesn't do much to ease congestion in Singapore, since everyone's paying road tax regardless of how much they actually drive.

Petrol taxes on the other hand do little to ease congestion too, since it doesn't matter when and where you drive - you're going to be taxed for driving even if you're not causing any congestion.

On the other hand, using ERP 2.0, the government could easily tax you for each time you drive your car. This will ideally make Singaporeans think twice about using a car unnecessarily, unless we're willing to pay every time we put our foot on the accelerator.

But Singaporeans would probably complain if this ended up making it more expensive to own a car. What if the government helped to reduce the cost? Like, for example, getting rid of the COE system? That's what one transport researcher Professor Lee Der-Horng suggested to The Straits Times.

Wait, you can't be serious… how does getting rid of the COE help reduce the number of cars on the road?

Let's first take a look at the consequences of removing the COE, once ERP 2.0 has been implemented. At first glance, it makes sense, when you think about it - car congestion is caused by people who drive cars on congested roads, not just by people who buy them. Why then, should Singaporean car owners be penalised if they're not adding to the congestion in the country?

By removing the COE, all Singaporeans can then own a car, not just those who can afford it. If we use ERP 2.0 to heavily tax car usage, especially at peak periods, these should ideally result in people driving in Singapore only when they need to. This way, everyone can own the car that's suited to their needs - a family of 5 doesn't have to squeeze into a cramped sedan simply because they cannot afford a bigger vehicle.

At the same time, because of the high cost of driving a car thanks to ERP 2.0, the satellite-based system can reroute traffic away from congestion-prone areas by making it even more expensive to drive in certain expressways or major roads.

Come on Pete, don't be naïve…. Reducing or removing COE will only encourage more people to buy and drive a car, regardless of how much ERP 2.0 charges them.

Sadly, that's probably true. No matter how high ERP 2.0 charges are, Singaporeans are probably still willing to pay the high fees if it means getting rid of COE. The familiar story of boiling a frog in a pot explains this. If you were to put a frog in boiling water, the poor creature will jump out immediately. But if you put a frog in warm water, then slowly increase the heat, the frog will be cooked without realising it.

In the same way, it's the current high COE prices that are effectively deterring Singaporeans from owning a car now. Even if the high ERP 2.0 costs eventually end up equalling the price of COE after several years, Singaporean drivers would still buy cars first, and then worry about how often they drive later.

ERP 2.0 therefore, would probably be a good replacement for road taxes and petrol taxes, but we're going to have to disagree with transport researcher Professor Lee that it should replace the COE.

At the end of the day, it seems the real solution to reducing car congestion is to make it difficult to buy a car in the first place. And to that extent, the COE seems like it's here to stay. That said, the government still needs to look into overhauling the current COE system, so that its purpose of reducing the volume of cars in Singapore doesn't include the side effect of increasing the profit margins of car dealers and being a system that only really benefits the rich in Singapore. is Singapore’s leading personal finance portal, and aims to help people maximise their money with powerful tools and engaging content.