Should public transport be free?

This video has nothing to do with public transport, free or otherwise, it's just a great video

My post on fare evasion last week prompted a number of commenters to suggest that public transport should be made free. Roads are free, the argument goes, so the idea that public transport should also be free is obvious. It would eliminate fare evasion as an issue, increase patronage, reduce car use and benefit lower income travellers.

Proponents argue that once the costs of ticketing and inspection are allowed for, the net cost would not be that high – one estimate for Melbourne is less than $200 million p.a. That shortfall could be financed by taxing the beneficiaries of public transport infrastructure, like CBD property owners.

Interesting as it is, I don’t agree with this proposition – in my view making public transport free would be poor policy. It might appear at first glance to be a good idea, but it’s instructive that there are few places in the world where public transport isn’t charged for. All of those towns are very small and in some instances only certain services are unpriced e.g. Stanford University free bus shuttle.

Of course there’s no such thing as “free” public transport – it still has to be paid for. Being “free” would simply mean the cost is recovered from someone else, such as taxpayers generally, rather than from the 13% of travellers in Melbourne who currently use it on any given day. And it’s worth noting that while roads are cheap, they aren’t entirely free – other than cyclists, all vehicle owners pay an annual registration fee.

Reliable numbers are hard to come by, but my working estimate is net ticketing revenue in Melbourne, after deducting collection and inspection costs, is around $650 million per annum*. In a world of “no deficit” government, that’s a significant amount. It’s enough to operate more than thirty DART-type Bus Rapid Transit systems each year or more than sixty 1,000 pupil high schools.

But free public transport would cost significantly more than that because it would generate additional trips. This would increase costs – there’d be a need for more services, more maintenance, more cleaning, and so on (e.g. see Crowding on trams gets worse). If patronage were to increase by half (say), the extra cost could be many hundreds of millions per year. There might be economic benefits in lower negative externalities, but actual money would still have to be found to cover the added costs.

Those reductions in negative externalities – principally lower car use – would in any event very likely be much lower than proponents of free public transport assume. The key constraint on significantly increasing transit’s share of trips at the expense of cars isn’t fares, but the greater speed and convenience of cars. Abolishing fares won’t substantially change that equation. In fact I expect much of the additional patronage growth would be extra trips by transit-dependent users, as well as trips by car owners that wouldn’t otherwise have been made (and which therefore are of relatively low value).

And I’m not so sure about the equity benefits of abolishing fares either. The main beneficiaries would be CBD workers and high school students – many of them attending private schools – as well as residents of well-heeled inner suburbs served by trams. It would also confer a larger benefit on those who make long trips and thereby encourage people to live further away from the city centre.

There are assorted other issues too. Some people worry that removing the barrier of fares would see public transport colonised by “undesirables”. This could make it less attractive and consequently deter users. Another potential issue is public transport might struggle even more than it does now to get government funding for service improvements and expansions, given that any expenditure would generate zero return (at the moment public transport covers around a third of its operating costs). Read the rest of this entry »

The distribution of wealth: perception vs reality

Chart from Mother Jones. And here’s a link to the paper this chart came from, Building a Better America – One Wealth Quintile at a Time (it’s quite short).

How to charge for the Big Day Out?

World's tallest buildings in 1884

47,000 tickets for the Big Day Out at Flemington race course sold out within minutes of going on sale at 9am on Friday. Tickets for the Sydney and Gold Coast events also sold out in record time. The organisers have arranged an additional event in Sydney (tickets on sale October 11).

The issue of how to deal with excess demand is a common one in cities, whether it’s concerts, road congestion or the (until recently unfamiliar) problem of public transport congestion.

As I went through the stressful process of buying tickets for the Big Day Out for my son (successfully as it turns out), I got wondering if ‘first-in, first served’ is really the ideal way to go about selling tickets for such a high-demand event. The organisers appear to think it isn’t.

They made a decision on Friday, apparently on the fly, to hold back 3,000 tickets for the Melbourne event. These will now be made available via a randomly drawn online ballot conducted once a week for ten weeks. Prices will be the same as they were for the original sale.

The organisers quite clearly could charge more than $164 per ticket (including booking fee), so why don’t they? It could be that they’re simply not very good at estimating people’s willingness to pay for a particular set of bands, or perhaps it’s such a black art that they’re not prepared to take too many risks. Or it might be that they’re in it for the long haul and don’t want to alienate concert-goers from returning in future years – they might want to protect the “brand”. Read the rest of this entry »

Is the Lord Mayor’s new parking charge a ‘money grab’?

The Lord Mayor of Melbourne, Robert Doyle, has bought himself a heap of trouble with Council’s decision to impose a flat $4 charge for parking in the CBD from 7.30 pm to midnight (see here, here, here and here).

The new fee will apply to 3,000 on-street metered parking spaces that are currently free at night. It will raise an estimated $1.9 million in revenue to be used for general Council purposes. Council is expecting to earn a similar amount from fines associated with the new policy.

While some people think it will encourage greater use of public transport, others say it will have a severe impact on restaurants, movies and shows and is just a naked grab for money. Another criticism is that public transport is too unsafe at night and finishes too early to provide a satisfactory alternative to driving. Others vow they’ll stop visiting the CBD and go elsewhere.

I find the reaction extraordinary. In my view Council’s action is understandable – any time you have a scarce resource that is under-priced there are bound to be some perverse and inefficient outcomes. Melbourne is a 24/7 city – the streets of the CBD are frequently heavily congested at night, particularly on Friday and Saturday nights. Charging for parking at night makes sense.

The Melbourne Business Council however is concerned that people coming in to the CBD to see Fame or Sir Ian McKellen in Waiting for Godot will now have to pay for parking. VECCI is worried about the impact on restaurants, small bars and theatres. But who shells out $100 plus for tickets to a show or dinner and quibbles over $4 for parking? On the contrary, I expect patrons will feel they’re better off if it loosens up parking options a bit. Read the rest of this entry »

Ring Road (M80) – an opportunity for road pricing?

The current upgrade of Melbourne’s Ring Road (the M80) provides an unprecedented opportunity to implement a form of peak period congestion charging in Melbourne.

Designation of one lane as a toll lane during congested periods would offer a higher speed for vehicles paying a fee. They would not necessarily enjoy the maximum permitted speed – a time saving of around 15% seems sufficient.

A toll lane would offer clear economic benefits. In particular, it would enable high value trips, which currently suffer the same delays as comparatively low value trips, to be made faster. In the US these sorts of lanes are called High Occupancy Toll (HOT) lanes but I prefer something like High Value Trip (HVT) lanes to emphasise the underlying efficiency rationale. The ‘price’ or toll varies with how many vehicles use the toll lane to ensure it provides an advantage while optimising the level of use. Read the rest of this entry »