Petrol duty hikes unlikely to push motorists to drive less in short run; taxi, private-hire car drivers may drive more

• Finance Minister Heng Swee Keat said petrol duty hike builds on the Government’s moves to reduce vehicular emissions
• Drivers said they won’t change their driving pattern as the monetary disincentive is not significant to them
• Taxi and private-hire car drivers, however, worry that it would hurt their earnings further
• Transport analysts said driving behaviour had always been very insensitive to fuel price changes in the short run

SINGAPORE — A day after the Government raised petrol duties by 10 to 15 cents a litre to nudge motorists towards more eco-friendly practices, most drivers and motorcyclists said that they are unlikely to drive less because the price increase at petrol pumps is not significant to them.

However, taxi and full-time private-hire car drivers are worried that the hike would hurt them, especially as their earnings have already been hit badly by the Covid-19 pandemic. While some said that this might cause them to drive less, others, including a few food delivery riders, said that they would drive even more to try to earn more money to cover the increased cost of petrol.

Transport analysts told TODAY that they were not surprised by the reactions of motorists, though they noted that driving behaviour could change in the longer run.

In his Budget speech on Tuesday (Feb 16) Deputy Prime Minister and Finance Minister Heng Swee Keat had said that the policy intention of the petrol duties hike was to build on the Government’s existing moves to reduce vehicular emissions.

By 2pm on Wednesday, all five petrol companies in Singapore have adjusted their petrol prices to reflect the increase in petrol duties.

The most popular grade of petrol, 95-octane, now costs between S$2.25 and S$2.32 a litre, up from S$2.15 to S$2.22 a litre. Premium grade petrol, such as 98-octane, now ranges from S$2.68 a litre at SPC to S$3.01 for Shell's V-Power. It used to be between S$2.53 and S$2.86 a litre respectively. All prices are before discount.

Mr Huang Min Chuang, a taxi driver of 11 years, foresees that he may have to work two to three hours more a month to maintain his earnings should his monthly costs go up by S$50.

The 64-year-old said that he is already taking in about half of what he used to earn — now taking home about S$50 to S$70 a day, down from more than S$100 previously.

Fellow taxi driver Chee Chong Yin, 70, who has been plying the roads for 15 years, questioned the timing of the hikes, with taxi drivers such as himself still reeling from the effects of Covid-19.

He pointed out that his daily earnings — after deducting rental, petrol and parking costs — have dropped to S$20, when they used to be S$40 to S$50 before.

A 39-year-old Deliveroo rider who wanted to be known only as Mr Low said that he would fulfil an extra one to two trips a day to keep up with the increase in petrol costs.

Grab driver Joseph Loh, 66, whose earnings are down 30 to 40 per cent from pre-Covid days, said that he might have to put in longer hours on the roads. He would also stay put at a car park and move only when he receives a booking so as to cut petrol costs.

DRIVERS NOT MOVED TO CHANGE HABITS

Then, there are drivers such as Mr Mike Shah, who said that the petrol hikes would not make a huge difference to car owners who have paid a premium for their rides.

The 52-year-old exporter said: “A 10-cent-a-litre increase would increase the bill by S$30, S$40, while I am spending S$1,200 or more a month to own a car.”

A 45-year-old BMW driver who wanted to be known only as Mr Tan said that petrol would now cost about S$10 more a month for him.

The communications executive said that the monetary disincentive is not going to change his driving pattern.

He had already switched to a more fuel-efficient car last year, turning on the efficiency mode when driving or travelling by bus if he could.

Mr Goh, a business executive in his 50s who drives an Audi sports convertible, said the news only meant that he would stop using premium-grade petrol since its price has gone up by 15 cents a litre. The increase for intermediate-grade petrol was 10 cents a litre.

WHAT ANALYSTS SAY 

Transport analysts told TODAY that the drivers’ sentiments are in line with existing research findings, that driving behaviour is very insensitive to fuel price changes in the short run.

Dr Walter Theseira, an associate professor of economics at the Singapore University of Social Sciences, said that this was the case even in countries where car taxes are lower.

“I don't expect there to be immediate effects in terms of people choosing to drive less just because of a 10- to 15-cent increase a litre in petrol prices,” he said.

“However, people would factor in the petrol price increases, as well as the fact that fossil fuels are likely to continue to be taxed more in the future, as they consider their next vehicle purchase — or not to buy a car at all — and that's where we would get change.”

Asked if the Government should impose further hikes on petrol duties, Dr Theseira said that a balance has to be struck between nudging the market towards cleaner vehicles and allowing people to meet their motoring needs with the current technology and vehicles available today.

“We are not seeing price parity between electric vehicles and internal combustion engine vehicles yet, and more importantly, we are nowhere near parity in terms of meeting market needs, as there are very few mass-market electric vehicles right now,” he said.

“However, I expect that continuing advances in battery and electric vehicle technology, and massive investments made by major car manufacturers, will get us a large variety of price and capability competitive electric vehicles within this decade.

“At that point, I think we can consider further adjusting taxes on fossil fuels, as motorists will be able to meet all their needs at the same or better price point with electric vehicles.”

Dr Terence Fan, an assistant professor of strategic management at the Singapore Management University’s Lee Kong Chian School of Business, said that the hike’s effect would only be felt in about one to two years, given that measures such as one-year road tax rebates were announced to offset the impact of the petrol duty hike.

“The hike in petrol duty will increase the marginal cost of driving, encouraging drivers and commuters to consolidate their trips and therefore slightly reducing total distance travelled,” he said.

“The intended effect is not to suddenly stop everyone from driving or using taxi or private-hire vehicles, but to do so with more consideration on total distance travelled. Even drivers of private vehicles may consider occasionally substituting driving with public transport.”

TAXI, PRIVATE-HIRE FARES TO INCREASE?

Addressing the concerns of taxi and private-hire car drivers, Dr Theseira said that a petrol duty hike without an increase in fares would result in a reduction in earnings, but this, too, has to be looked at in the context of continuing government support for the industry.

“It will also be up to the industry to decide if this cost increase should be passed on in the form of higher fares, which will address the earnings problem for drivers,” he added.

Dr Fan said that the hike is also moderated by the fact that taxi rental rates have generally come down in the past few years. “Considering the government assistance handed out in 2020 to taxi and private-hire vehicle drivers, it is not a net loss to them,” he added.

In response to TODAY’s queries on whether private-hire fares would be adjusted in tandem with the petrol duty hike, Mr Lien Choong Luen, general manager of Gojek Singapore, said that the ride-hailing company is tracking developments in this area.

“Our focus is on ensuring fares remain competitive and fair to both drivers and customers,” he said. “We will also be enhancing fuel benefits for our driver-partners during this period, which include more inclusive and extensive fuel rebates, as well as complimentary car wash services. This ensures we can continue to support our drivers by helping to defray their daily costs and providing earnings stability."

A representative from ride-hailing firm Grab said: “We will be engaging all stakeholders to discuss the impact of this price increase on our driver- and delivery-partners.”