Taxing traffic

LAST THURSDAY evening, I was on the way to a dinner meeting called by Finance Secretary Sonny Dominguez with some economists to gather comments on tax reform proposals he presented at the Senate earlier that day. I never made it. Having left Makati at 6 p.m. for the meeting venue that in normal traffic would take me about 30 minutes to reach, I managed to cover little more than one kilometer, mostly within the Makati commercial district, after nearly two hours on the road. At 7:50 p.m., I decided to turn into the expressway and head for home in Los Baños, rather than plod on along Edsa, which was then at a near-standstill, with no idea whether I could even catch the tail-end of the meeting.

I informed Secretary Dominguez of my decision to proceed home, and said: “There are simply too many cars and we need draconian measures to reduce them. You might add to tax measures: 1) the Singapore solution of heavily taxing car use in city streets; 2) a steep hike in car excise/registration taxes except in rural areas remote from cities.” I added that Transportation Secretary Arthur Tugade may need to resort to the more drastic odd-even vehicle reduction scheme (rather than the present number-coding that only keeps one-fifth of cars off the road on any given weekday). But he should ensure availability of more “business class” buses to avoid a possible revolt by car owners.

Anyone who has been caught in Metro Manila’s horrendous traffic knows that there are simply too many cars now choking the city’s roads. It’s not as if anyone should be surprised. Motor vehicle sales have zoomed in recent years, with an annual growth rate of 27 percent as of last report. Industry analysts observe that the Philippines has crossed the “motorization” average income threshold, or that level at which vehicle ownership becomes widely accessible, leading to the zooming growth in car sales we are now witnessing. Last year, the industry counted 321,532 new motor vehicles sold in the country. A total of 419,339 motor vehicles were registered for the first time, implying that nearly 100,000 new and used cars must have also been imported.

All together, this implies that around 35,000 new vehicles hit our roads every month. Netting out an estimated 180,000 vehicles retired last year, the net addition was about 240,000 vehicles over the past year, or 20,000 added every month. How many of these were in Metro Manila? With 36.5 percent of our total incomes concentrated in Metro Manila, a reasonable estimate would be that same proportion of 20,000, or 7,300 vehicles, adding to Metro Manila traffic with every passing month. And this expansion will continue, with the monthly addition getting even bigger in the years ahead. These data don’t even count motorcycles yet, which would more than double these numbers.

Unless we get more and more people to leave their cars at home and take mass transport, Metro Manila’s roads are literally headed to become one giant parking lot. It makes no sense to simply build more roads and do nothing else; we simply cannot build new roads fast enough to outpace the rapid increase in cars. Building new roads to solve traffic congestion has in fact been likened to trying to put out a fire by pouring gasoline on it, because expanding roads only begets even greater demand for cars. The recent news report citing these statistics actually attributed strong vehicle demand to ongoing infrastructure developments.

Singapore chose to impose a limit on car ownership and auction out the entitlement to own a car, to the extent that the cost of the license to buy a new car well exceeds the purchase price of the car itself. Under its system, those intending to purchase a vehicle must first file a monetary bid for a certificate of entitlement (COE) with the Land Transport Authority. The number of available COEs is based on an annual quota spread over the year. The quota is determined from 1) number of vehicles retired, 2) number of expired/cancelled COEs, and 3) allowable growth in vehicle population. The COE system is seen as a good market-based solution to Singapore’s inevitable need to curtail the number of cars on the road, given the small size of the city-state. But in our country where for millions of families, car ownership is a newfound capability, the policy could be deemed unfair and unjust to this segment of our erstwhile poor, and thus meet strong opposition on social justice grounds.

The Singapore solution I mentioned to Secretary Dominguez refers to the congestion pricing scheme the city-state pioneered in 1973, known then as the area licensing scheme, and subsequently as electronic road pricing. The scheme covers all roads entering a 7.25-square-kilometer area in the central business district called the “restricted zone,” and boils down to motorists having to pay a variable charge (determined by traffic conditions) for entry into the zone. The scheme reportedly reduced traffic in the central city district by up to 76 percent.

London and several other European cities subsequently copied the system. In London, which adopted congestion pricing in 2003, a total of 2.6 billion British pounds was collected in the first 10 years under the scheme, nearly half of which was invested in improved public transport facilities and infrastructure. With the volume of traffic in Metro Manila, and in Cebu and Davao where the scheme could be useful as well, the government can potentially raise billions of pesos in additional revenues. This makes it a worthy addition to Secretary Dominguez’s tax reform package. The beauty of it is that he would also help Secretary Tugade reduce traffic congestion in the process.

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