Should public transport users pay their way?

The peak industry body, Tourism and Transport Forum Australia, got itself into hot water with the media last week. The Forum suggested in a new report, Meeting the funding challenges of public transport, that eligibility for concession fares should be drastically restricted.

The brouhaha was unfortunate because the Forum’s underlying contention – that public transport in Australia should be operated on a full cost-recovery basis – is worthy of closer examination. Closer examination, that is, provided we’re talking about recovering full costs from those who can afford it!

At present, fares only account for approximately 36% of public transport operating costs across Australia’s five largest cities according to the Forum’s consultant’s, LEK. They say the rest comes from Government subsidies and is low compared to an international average of 60%.

The challenge facing governments in Australia is simple enough. Public transport capacity has to increase enormously to deal with expected higher demand driven by issues like peak oil, climate change and unprecedented population growth. For example, patronage has already grown 5% p.a. over the past five years in Brisbane and Melbourne.

It’s easy to say that this can be addressed by increased funding, but the same issues driving higher public transport demand will also put pressure on a range of other portfolios – like health and education – at Federal and State level. In addition, the ageing of the population places greater demands on funding and we now have an entrenched political culture of low or zero deficits.

But there are 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 under-invest in public transport. A subsidised system will also have fewer funding options – it will be less likely, for example, to attract the sort of private sector investment that has funded new toll roads in Melbourne, Sydney and Brisbane.

And subsidised fares are also inequitable. The main market for public transport – peak hour commuting to the CBD – is on average made up of relatively high income workers. In contrast, travellers who are wholly reliant on public transport often contend with low frequencies and restricted hours of operation, especially those living in outer suburbs.

The key arguments for subsidising public transport are that it will lower traffic congestion, minimise the energy security and environmental issues associated with car travel, and promote greater social inclusion.

I don’t buy the congestion rationale. Congestion is evidence of why public transport is needed in a particular location but it’s not an argument for subsidising it. Public transport is essential for delivering workers to the businesses who benefit from the very high density of the CBD (even though they don’t pay for it!), but it hasn’t eliminated traffic congestion on the approaches to Sydney’s and Melbourne’s CBDs – or Manhattan’s for that matter – any more than freeways have.

Energy security and environmental costs are more compelling arguments. Public transport should only be operated on a full cost-recovery basis if cars are also required to pay their full costs (as I’ve argued here). That’s a neat synergy because in most situations public transport will only be competitive with cars when the latter’s inherent technical advantages are nullified by higher costs from, for example, road (including congestion) pricing.

Road pricing is also a potential source of revenue for public transport, although its significance shouldn’t be over-stated. Managing congestion to maximise social welfare doesn’t necessarily maximise revenue.

A key purpose of public transport is to provide mobility for those who do not have an alternative mode of travel. Some of those travellers warrant concession fares because of their limited ability to pay. However that subsidy should be funded from the general budget rather than from the transport system (and in some cases is).

The Transport Forum wants a review of concessions and I think that’s reasonable. I cannot see why student concession fares, for example, shouldn’t in-principle be means-tested.

It’s worth contemplating the possibility that subsidising all fares might actually make many of those who are on the lowest incomes and who are most dependent on public transport, worse off. This could be the case if entrenched under-funding leads to institutionalised under-provision.

Off-peak services will have to be cross-subsidised by those that are better patronised. That simply means those who have the capacity to pay – like the aforementioned CBD peak hour commuters or, better still, their employers – should pay fares that make a bigger contribution to recovering system-wide costs.

A lot of the public transport discussion is focussed on management arrangements. That’s a pertinent issue but it’s not the main game. I think it’s time for a new debate about public transport that’s centred on moving toward full recovery of internal and external costs from both transit and cars. You can’t make policy on one without the other.

9 Comments on “Should public transport users pay their way?”

  1. Joseph says:

    Whilst revenue is certainly an important aspect, cost is probably at least as significant. In Melbourne at least costs are way too high and performance too low due to the public transport system being run by unions. Did anyone else notice how well Melbourne’s trains ran in the last few months of Connex management? I suspect this was due to the unions having nothing to gain by fighting battles with outgoing management. As soon as Metro management arrive the power struggle resumes and performance deteriorates. The State Government appear to be completely unwilling to challenge them and instead they have thrown more money at the problem. So now we have an army of Metro employed platform attendants that loiter at the stations looking rather lost. Is it reasonable to expand public transport when the Government is unwilling to do what it takes to make it work properly?

  2. Mahyar says:

    Why not just means-test all transport to make it really fair? Or everything subsidised by government, like food production and housing? Aren’t food and shelter more essential than travel anyway?

    But if we means-test everything, why not just have a flat income tax rate?

  3. Moss says:

    “So now we have an army of Metro employed platform attendants that loiter at the stations looking rather lost. Is it reasonable to expand public transport when the Government is unwilling to do what it takes to make it work properly?”
    Joseph – Amen to that!! What do those people actually do, other than scream at people to move along the carriages? What a waste of money!
    By the way, Alan your suggestion that businesses should be taxed for this sounds similar to the levy that businesses in Paris pay – initially to fund the RER.

  4. Peter Parker says:

    Alan, the main mismatches between fares currently charged and ability to pay are (1) Seniors Card holders and (2) Free pass holders (mostly employees and members of certain occupations such as politicians and judges).

    A previous respondent mentioned students, but the Seniors Card is by far the biggest rort going due to the much higher average wealth of seniors. It is non-means tested and as far as I know the ‘under 35 hours / week work’ test is not enforced. And in any case a 61 year old self-employed doctor or lawyer can structure their hours better than a 38 hour/week PAYE employee.

    Their public transport concessions are extremely generous with various free travel vouchers, free travel weeks and fares (in Melbourne) that are substantially lower than even concession tickets.

    While there are pockets of need amongst 60+ year olds, on average they are wealthier than average, and those that are needy (ie qualify for the age pension which by itself is not that generous) would be eligible for concession fares by receiving a pensioner or having a low income health care card.

    The government that introduced Seniors Card (or more accurately consented to it being eligible for various discounts) installed an expensive financial/demographic entitelment timebomb that is politically hard to change.

    The above covers off the financial and equity arguments – and on this basis seniors fares cannot be justified.

    On the other hand, if you wanted to maximise system patronage, offering cheap fares to time-flexible travellers is a good thing, provided this is during times when there is adequate spare capacity. This is normally considered to include peak hour trains and trams, but capacity can also be full on CBD trams during lunchtime and sections of SmartBus routes on weekends (in the latter’s case the constraint is the frequency willing to be funded).

    Unlike with driving (where more cars slow others, and at the marginal level requires more roads/parking), higher public transport patronage up to a certain point higher patronage actually benefits other passengers and the community.

    This is due to greater feelings of safety, increased cost recovery ratios, lower pollution per passenger and more pedestrian activity (which increases visibility/safety of other pedestrians, even if they aren’t using public transport). Ideally higher patronage leads to higher service levels, though as you point out this can be ‘sticky’ (as services run below cost-recovery and, unlike other cities Melbourne is reluctant to redirect service resources between routes).

    Hence higher transit transit patronage is a good thing. In the absence of higher capacity, its main good is during times when services aren’t already crowded. Attracting time-rich passengers who don’t have to travel is not a bad tactic to boost patronage and the other benefits it brings.

    And it’s understandable that Seniors are one group that could be lured. The means that this is done is not economically equitable. Requiring that Seniors Card fares are only eligible off-peak would increase equity (concessions could still apply during peak at other times to those who meet other criteria) would increase equity.

    However in practice I see very few Senior travelling on peak trains, so the effect that this would have in releasing capacity for full fare-payers is limited. Hence it is no suprise the government decided to let sleeping dogs lie, due chiefly to political considerations, but also because removing peak period eligibility for Seniors Card holders won’t contribute much to peak capacity.

  5. Alan Davies says:

    There’s a comment on Crikey prompted by the version of this article published in the Crikey Daily Mail on Tuesday, 28 September. It’s gated, so here it is:

    “Leo Foley writes: Re. “Should public transport users pay their way?” (yesterday, item 12). Fares are not the only way of funding public transport. Good public transport systems enhance the localities that they serve. That increases land values, without the landowner contributing anything at all. If we were to capture just some of that land value increase, then public transport could be paid for.

    Fares would be minimal, encouraging greater use. Instead of thinking “user-pays”, think about “beneficiary-pays”. Commuters are not the only beneficiaries, and in dollar terms, they are a fair way down the scale below landowners.

    A flat-rate land tax will provide the sort of public transport services that we need, as well as other community facilities”.

    Mr Foley seems to have missed my point about CBD firms being levied to contribute to the cost of public transport. Not sure that the increase in land value attributable to transit would pay for all of its ongoing cost as he claims, but even if it did, I suspect the politics and mechanism of capture would make the introduction of road pricing look like a piece of cake.

  6. Alan Davies says:

    More comments (17) on the version of this article published on On Line Opinion. Not gated.

  7. […] just one, could be financed. Indeed, it could be used to fund an expansion of public transport (as I’ve argued before). It’s a financing issue and not central to the issue of whether transit should be […]

  8. […] do much to assuage the vitriol spat out by most readers. However I disagree with them. As I’ve pointed out before, I support the idea of increasing fares in real terms. This is not a conservative view – the […]

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