How to pay for public transport?

Additional revenue from fare increase, Sydney - three scenarios (Independent Inquiry)

I was pleased to see the call earlier this week by The Age’s city editor, Jason Dowling, for tolling of roads to be introduced in Melbourne (Losing our way on roads).

He sees it as a way to reduce congestion and generate revenue for public transport improvements. Road pricing is something I’ve advocated on a number of occasions (here and here), but what particularly caught my eye in Mr Dowling’s article was his opening line:

“Everyone pays for public transport, first through taxes and then through fares, and it is time everyone had access to it, just as they do to roads”.

Few would disagree that Melbourne would be a more attractive place if it were as easy to access a train, tram or bus as it is a car. Somewhere along the line, however, the issue of cost has to be considered. Transport projects are very expensive. The State Government is spending about $2.5 billion on increasing the capacity of Victoria’s rail and road systems this year.

At that rate it will take many decades to improve the capacity of Melbourne’s public transport system. Just one project, the Regional Rail Link, is costing $4.3 billion in total and is only proceeding because the Federal Government is contributing $3.2 billion.

There is an ever expanding list of multi-billion dollar public transport projects that warrant funding, such as the Melton electrification, comprehensive signalling and power system upgrades, Footscray-Domain tunnel, orbital outer suburban bus services and various duplications, train/tram track extensions and level crossing eliminations. Then there are “wish list” projects like the Rowville rail extension, airport rail link, high speed rail, and more.

What is really needed is more revenue to fund more projects. There are others, but here’re two potential sources.

A comprehensive road pricing scheme that extracts the full cost of private travel would provide some of that revenue. The real value of congestion pricing lies in giving priority to high value trips but using the revenue for a transport-related purpose is almost certainly a prerequisite for obtaining public acceptance (see here).

Public transport users are another potential source of revenue. Most public transport travel is for work purposes and most of that is trips to the central area of Melbourne. Provided car travel is priced in line with its real costs there is little reason why public transport users should not also pay the real cost of transportation.

That might best be achieved through the gradual introduction of a combination of higher fares (varying by time-of-day) and levies on both (a) central area businesses that benefit from the public transport system and (c) residential properties that are well served by public transport.

Some might argue that increasing fares would be a disincentive to use of public transport but the key is to increase simultaneously the cost of driving so that both modes are priced at social marginal cost. Higher road charges, fares and levies would of course need to be discounted for people with limited ability to pay.

These sorts of ideas would be difficult politically but they’re not entirely fantasy. The recent report of the Independent Public Inquiry into a Long Term Public Transport Plan for Sydney proposes a 30 year, $71 billion (capital and recurrent) program of mostly rail works to increase public transport’s share of all trips in the Sydney metropolitan area to around 25% (or possibly 35% – the report is ambiguous).

The Inquiry proposes to find part of the required funding by increasing fares and other charges to levels the community has indicated via surveys that it is prepared to pay in exchange for improved public transport services. It proposes that fares on all public transport modes in metropolitan Sydney be increased by 16% in real terms in the first year and by 1.3% in real terms each year for the succeeding 30 years.

The Inquiry also envisages increasing rates on all residential properties in metropolitan Sydney by an average of 20% and those on businesses by 15% to help fund the program. Further, it plans on imposing a $7.46 entry fee on cars entering the CBD, a $7.19 daily levy on parking and, in two of the scenarios considered, levying an additional registration charge of up $287 per vehicle.

These fares, levies and charges raise almost 80% of the required capital and operating costs for the ambitious program of works proposed by the Inquiry.

There’s already a developing momentum in favour of road pricing, supported by successful overseas precedents. The value of increasing public transport fares is less obvious. Perhaps the best argument is that public transport is likely to remain underfunded while ever it relies on public sector subsidies. Governments have no incentive to expand the system because all additions to the network increase the call on recurrent funds.


8 Comments on “How to pay for public transport?”

  1. TomD says:

    Your last point here could well be the most important in terms of political understandings and why things do or don’t happen.

    Re you overall points about user paying, would be interesting to cast these in the context of a total government budget.

    If people wanted transport costs/fares to be kept low would there be another area of public expenditure they would be willing to see cost more (maybe in line with real costs there too) to offset this in terms of the way they perceive and value things. Those property tax hikes suggested in Sydney fit this picture but not sure they would go down well!

    Another example might be reexamining the all-expensive health care costs – a truly significant budget area for any government. Isn’t it time massive savings were made there (thus potentially freeing up money for other things like transport) by equally hard headed approach to the ones you are raising. In this instance redirecting the health care focus totally over to prevention.

    This could e.g. mean major and meaningful action over anything from far more serious personal health educational campaigns to advance remedial programs against the biggest and most costly diseases and their much higher ‘treatment’ costs (once contracted).

    And then there is my favorite example here – simply having fast food chains either find alternative recipes that are actually healthy to eat (while still tasting good) OR otherwise pay ‘in compensation’ their huge proportion of the health costs associated with the excess fat, sugar and salt disease consequences they ‘push’.

    (The drug ‘pushers’ analogy is valid, since these are all known addictive ingredients … which of course is why they market their products so heavily and use these as dominant ingredients in the first place!)

    But wait, there is all that lobbying, media and political pressure to deal with if this latter path was followed. And of course people choose to eat such foods willingly. (Did we overlook the deliberate excessive use of genetically addictive substances – fat, sugar – and the fact that safer ingredient alternatives and cooking approaches to these do exist?)

    A further point I am trying to make is that it would seem to be easier for both major parties (somewhat in cahoots with each other) to ignore public opinion over ‘user pays’/’pay the real costs of your actions’ expectations being applied to them, but rarely if ever to more powerful corporate and business interests.

  2. TomD says:

    Clarification: The ‘them’ in that last sentence means voters and the public. They are the ones always expected to pay, whereas this is not as true for powerful business interests.

  3. TomD says:

    Oh, and I meant to add that if using better alternative ingredients in fast foods means that initially at least the cost rises, this is one area where the public paying more would make sense. They too would be contributing to the health savings resulting and again it just might encourage them to consider similarly priced alternative meals that could be even healthier again.

  4. […] This post was mentioned on Twitter by John Siraut, Mark Brown. Mark Brown said: http://bit.ly/9lS42h Australia making the link between road pricing & public investment. Where next? […]

  5. Michael says:

    Shouldn’t more externalities associated with private cars be acknowledged and priced. It strikes me as grossly unfair that heavier cars aren’t charged more. What about tailpipe emissions and noise pollution?

    • Alan Davies says:

      Exactly. The price for road use has to cover all the non-market costs. Same goes for negative externalities associated with public transport.

      • Michael says:

        Well, as usual you make a persuasive case, but something seems missing. On one hand you have planners and economists talking about who should be paying for the costs of building and maintaining transport (the users mostly) and on the other you have the politicians not wanting to charge anyone directly. Few relish the idea of having to pay more for things, especially if the benefits are spread out amongst the general population or off in the future (just like dealing with carbon emissions). I don’t see any mechanism to deal with this gap now that privatisation and outsourcing has failed (see $60 million train stations).

  6. […] other issues besides finding the money that the Transport Forum could usefully have examined. As I noted here, if every new project increases the operating subsidy, governments are likely to chronically […]


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