Mr Chua Kheng Wee Louis asked the Minister for Transport whether the Public Transport Council plans to expunge the 15.6% fare increase deferred for future Fare Review Exercises (FREs) after a 7% increase having been granted in 2023.
Mr Chee Hong Tat: Thank you, Mr Speaker. Sir, my reply will also address Written Question No 14 by Mr Louis Chua for today’s Sitting and related questions from Mr Gerald Giam1,2, Ms Hazel Poa, Mr Don Wee and Mr Leong Mun Wai for subsequent Sittings.
Sir, in setting public transport fares, the Public Transport Council (PTC) is guided by the fare formula and aims to keep fares affordable for commuters, while ensuring that our public transport system remains financially sustainable.
The fare formula reflects the general cost drivers of providing public transport services, based on macroeconomic factors such as core inflation, national wage growth and energy prices. It provides for fares to be adjusted in tandem with changes in these cost drivers, rather than changes in operators’ actual costs. In this way, the operators cannot assume that their cost increases will be matched by correspondingly higher fares. Hence, they need to be disciplined in managing their costs and improving their productivity over time.
This approach also applies to wage costs. In setting fares, the PTC does not focus on the actual salaries paid by the operators. The formula is based on the national wage index. This allows operators to keep public transport sector salaries competitive with the rest of the economy, so that they are able to attract and retain their workers. Wage increases that exceed changes in the national wage index will not be covered by the fare formula. Over the past five years, the wages of public transport workers grew at a similar pace as the national wage index.
The fare formula also includes a Productivity Contribution, which reduces the allowable fare adjustment by 0.1 percentage points every year. This further incentivises the operators to look for continuous productivity improvements to reduce their costs. For example, the operators have been using joint tenders to achieve economies of scale, automating their maintenance processes and upskilling their workers to improve productivity.
The fare formula therefore avoids operators’ costs from being directly passed on to commuters, while allowing commuters to benefit from productivity savings from the operators.
Guided by the formula, the PTC exercises judgement on how much of the allowable fare adjustment to implement each year, taking into consideration economic and social factors. For example, the PTC looks at affordability as measured by the estimated proportion of household income spent on public transport. For the lower-income, this proportion has fallen from 3.1% in 2013 to 2.4% in 2022. For average public transport users, the figure has also reduced from 2.2% in 2013 to 1.7% in 2022.
The quantum of allowable fare adjustment that is not implemented in a particular year is deferred and carried forward to future years. In the 2022 Fare Review Exercise (FRE), the PTC deferred 10.6% percentage points of the fare increase. In this year’s FRE, the fare formula output was 12%, driven by a 62% increase in energy prices, strong national wage growth at about 7%, and core inflation at about 4%. Adding the deferred quantum of 10.6% to the fare formula output, the maximum allowable fare increase for 2023 was 22.6%.
To keep public transport fares affordable for commuters and understanding that Singaporean families are currently facing higher costs of living, the PTC again decided not to grant the full quantum this year. Instead, the PTC decided on an overall fare increase of 7% – which is less than a third of the maximum allowable fare increase of 22.6%. The remaining 15.6 percentage points will be deferred to future years.
To account for this funding gap, the Government will provide $300 million of additional subsidies in 2023, which is $100 million more than the previous year. This amount is on top of the $2 billion annual subsidies to fund bus and train services. In addition, the cost of public transport infrastructure is also fully funded by the Government.
Mr Louis Chua asked whether the PTC plans to “expunge” the 15.6 percentage points. Mr Don Wee asked if the PTC can “impose a moratorium” on future fare increases. Mr Speaker, I am concerned that Mr Chua and Mr Wee are making these suggestions. Please allow me to explain why their proposals are not sound, as these will affect the longer-term reliability and financial sustainability of our public transport system, to the detriment of Singapore and Singaporeans.
I had earlier mentioned that the fare formula reflects real cost increases in our economy, such as energy costs and wages. 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.
Hence, 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? If it is the latter, they should elaborate how such a move will be funded every year and whether they are proposing for Singaporeans to pay additional taxes to do so? I hope that is not what they have in mind.
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 Louis Chua asked about the profits of the public transport operators, and Mr Don Wee suggested that we could freeze fares given that operators have been profitable. Sir, bus and rail services adopt different operating models. For buses, Government collects the fare revenue and pays the operators a service fee that is derived from competitive bids via bus contracting tenders. Overall, bus services are operating at a loss and that is why Government needs to provide about $1 billion in subsidies for buses every year. Expunging the deferred fare or freezing future fare increases will result in larger losses and higher Government subsidies.
For rail services, the operators collect the fares to cover their operating costs, so fares do impact the rail operators’ profitability directly. In the latest financial year, after accounting for Government grants, SBS Transit reported a loss of several million dollars for their rail operations, while SMRT Trains reported an operating profit of $6 million, which represents a profit margin of less than 1%.
We should not pretend that the deferred 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. 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. We need to be clear that Government subsidies are ultimately borne by current and future generations of taxpayers.
The PTC will continue to ensure that fare adjustments each year are affordable. In each future FRE, 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. 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.
The PTC and Government are also mindful that fare increases affect different groups of commuters differently. While it is important that commuters bear their fair share of cost increases, we are committed to ensuring that fares remain affordable, especially for concession groups such as seniors, students, lower-wage workers and Persons with Disabilities. These groups enjoy discounts of up to 70% off adult per-journey fares.
Within each concession group, there is a wide range of spending on public transport, depending on different commuting patterns. Among all seniors, Persons with Disabilities and individuals on the Workfare Transport Concession Scheme (WTCS), the median monthly spending on public transport is about $16, $24 and $35 respectively.
As heavy users of public transport will be more affected by the increase in per-journey fares, we will reduce the price of hybrid monthly concession passes by up to 10%, and introduce a new discounted WTCS monthly pass. This is expected to benefit about 60,000 commuters, including about 1,600 WTCS cardholders who currently pay per-journey fares and spend more than the monthly pass price of $96. Concession cardholders who make fewer public transport journeys will continue to enjoy substantial discounts off adult per-journey fares.
When fares increase, the PTC requires rail operators to contribute a proportion of their increased fare revenue to the Public Transport Fund. In the coming year, the rail operators will contribute a total of $16 million. Together with Government’s contributions to the Fund, these monies are used to provide Public Transport Vouchers (PTVs) to help cushion the impact on lower-income households. The Government will increase the PTV amount from $30 in 2022 to $50 this year.
Over the past decade, we have steadily enhanced the quality of our public transport system by expanding the network, and improving accessibility and reliability of services. These outcomes have been achieved through our strong tripartite partnership between the Government, operators and workers, while keeping fares affordable and the public transport system financially sustainable. This will remain our approach going forward.
Mr Speaker: Mr Louis Chua.
Mr Chua Kheng Wee Louis (Sengkang): Thank you, Mr Speaker. Two clarifications for the Acting Minister. The first is in relation to the PTC’s work, I understand that it is guided by the fare formula. But if you look at the increase that is been granted, 7%, I think that is well above what we are seeing in the overall inflation rates here in Singapore, so far.
If you look at the 15.6 percentage-point increase that is going to be deferred to the future, this is going to cause a significant effect, a lasting effect into the increases in public transport fares for Singaporeans, given that this could have a snowballing effect, since there will be the deferred increase and future increases to consider.
So, in that sense, would the Minister not consider, even if not expunging, then moderating the level of increase, just as it did in the fare review exercise in 2021, when the PTC did not fully agree with the outputs from the fare formula? So, this is the first clarification.
The second is in terms of financial sustainability. In relation to the written answer which Minister has partially responded to, when I look at the public transport operator, should we not look at the public transport system as a whole, and in that sense, would the Minister not agree that if we look at the returns that some of these operators are generating – one of them, for example, is actually generating close to 11% ROE in the last one year and 13% in the last five years – one would struggle to see how the financial sustainability of the operator, at this point in time, is actually in question?
Mr Chee Hong Tat: Mr Speaker, I thank Mr Chua for his two supplementary questions. Sir, the fare formula was revised last year and some of the changes that we have made to the fare formula is then reflected in this year’s fare review.
Sir, the inflation that we look at in a fare formula is captured under the Consumer Price Index (CPI). And yes, that is part of the fare formula. It is 0.5 times the core CPI.
However, we also need to look at other components that affect the cost of the operators, but taken, as I explained my main reply, not their actual cost but as a benchmark looking at the national wage index and looking at the energy index, because these are significant cost components that will affect overall public transport operations.
So, that is why the fare formula, using these components, we worked it out last year, we carried it forward, 10.6%. And this year, it was 12%. So, if you add that to the 10.6%, the total is 22.6%.
But this is where – perhaps Mr Chua and myself, we may not disagree so much – that the PTC does not just go for the formula maximum amount and say, “It is 22.6%, therefore I go for 22.6%”. That is not how it is done. As I explained, they will exercise judgement, they will consider the impact on commuters, on affordability, and then after that, they will exercise judgement in terms of what is the level to set and how much to defer.
This year, for example, the maximum amount that could be set was 22.6%. But the PTC did exactly like what Mr Chua mentioned, they factored in all these different considerations and they decided that we should only increase by less than a third, 7%, and the rest will be deferred.
But when we say “deferred”, what it actually means is that the Government is then topping up to ensure that this funding gap is provided for. And in this year’s fare review, the Government is providing $300 million of subsidies to cater to this gap.
That is why I explained earlier that if we do not find ways, in subsequent years, when we can, to gradually to reduce this gap, and if we expunge it, what it means is that the $300 million will remain as a permanent subsidy. And it will add on to the existing subsidies that we already provide: $1 billion for rail, $1 billion for bus. This will increase the burden on taxpayers.
I appreciate Mr Chua’s concern. I think it is a valid point that we do want to look at affordability on commuters, we do want to consider the impact, including on the overall cost of living. And that is why the PTC exercises judgement and it is not just driven by the formula. I hope that addresses Mr Chua’s concern.
Sir, Mr Chua also had a second point about the profit numbers and the financial sustainability of the public transport operators. I have explained this in my main reply as well. We need to look at bus and rail separately. For buses, the fares that are being collected do not go to the operators. We are discussing fare review here. The fares that are being collected actually do not go to the revenue of the bus operations. The revenue of the bus operations come from LTA, when we tender out bus contracts. And they bid and then, the service fee, based on the bids, that is what we pay them.
I would be happy to share with the House that over time, as we do more bus contracting tenders and as of now, there are more operators – there are now four bus operators – the bids are also becoming more competitive and we have also refined the way we do the bus contracting, the service fees and the margins have been coming down in the more recent contracts. So, hopefully, over time, it will allow us to squeeze out more productivity gains, more savings, that we can then pass on to taxpayers and to commuters.
Mr Speaker: Mr Gerald Giam.
Mr Gerald Giam Yean Song (Aljunied): Thank you, Mr Speaker. Sir, the Acting Minister has responded to two of my Parliamentary Questions, so, I have several supplementary questions to ask related to them.
Sir, the $50 public transport voucher provides less than two weeks of travel for a family of four, and larger households will deplete it even more quickly. Even for workers and the Workfare Transport Concession Scheme, the PTV covers less than half a month’s public transport expenses per worker. Given this, what is the rationale for setting the PTV quantum at $50 and can this be increased further?
Second, many families have multiple family members working or schooling, and each of them may need help to cover the cost of public transport. Can the public transport vouchers be provided on an individual basis rather than per household to help larger families that are working hard to make ends meet?
Next, one of commuters’ bugbears is that despite increases in bus fares, bus routes, especially trunk services which are popular among the elderly, continue to be rationalised. While this boosts operator profits and Government savings, it diminishes service quality for the affected commuters. Even to this day, my residents in Bedok Reservoir still complain to me about reduced bus services and request for the return of bus services 66 and 506. Will LTA continue to rationalise bus services despite this increase in bus fares?
And lastly, the public transport fare hikes coincide with record-high COE prices and increases in fares and fees for taxis and private hire vehicles in July. Singaporeans cannot help but feel squeezed no matter which mode of transport they take. Did the PTC consider the recent increases in private transport costs when approving the public transport fare hike and its impact on Singapore’s plans to become a car-lite city?
Mr Chee Hong Tat: Mr Speaker, I think the last question that Mr Giam asked, I already explained earlier in my response to Mr Louis Chua that the PTC is mindful of the overall higher costs of living concerns of Singaporeans and therefore makes a judgement call not to allow the full amount but to allow only less than one third.
Sir, the first question that Mr Giam asked was about the quantum of the PTVs. We look at it differently. The PTVs are not designed or not intended to defray the total public transport expenditure, but rather, they are meant to cushion the impact of the fare increase on lower-income households. So, if you look at it from that point of view, we estimate that $50 would cover about six months of fare increase for these households.
That said, I do agree with Mr Giam that families and households have different compositions – some have more members. I do acknowledge that point. The way we have done it, Sir, is as with past exercises, households with genuine needs but may have missed the eligibility criteria or if they need more help because they have a larger family size, they can appeal to their local community centres. For this round, they can start doing so from early-2024. The appeals will then be considered on a case-by-case basis.
Sir, the second question that Mr Giam asks, I think we have discussed this previously, but allow me to just recap some of the key points. Sir, we do not rationalise or take away buses in a frivolous manner. I understand the concerns. This has to be very carefully considered because there are commuters who are affected. We try our best not to do that. But because there are new estates that are coming up, including I am sure in Mr Giam’s constituency, we do need to also cater new feeder services to meet new demand. So, if we do not find a way to re-allocate some of the resources from existing services to meet new demand, then the concern there is that the bill will keep growing for commuters and for taxpayers.
So, when we have to take away some of these longer trunk routes, the considerations are, first, is there an alternative? So, we do not take away if there is no alternative. Second, is there a parallel MRT route or line that the commuter can take? The concept that I hope Mr Giam can help us as well to explain to his residents, is that we encourage people to take public transport as much as possible within the town, feeder services to bring them them from their homes or near their homes to the key transport notes like bus interchanges and MRT stations. And then for the longer trunk routes, gradually as we develop our MRT system and it becomes better connected, a more efficient way is to use the MRT to cater to the demand for the longer trunk routes. So, think about it as feeder services mainly for the local, bringing you to key transport nodes; and then the MRT to cater to longer trunk routes. I think if we can help to move towards such a system, it will be more efficient and also from a connectivity point of view, better for commuters.
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