Should public transport fares be higher?

Fare revenue/per passenger km ($) for public transport in selected cities (data from Ian Wallis & Assocs)

The report in The Age that the Government is considering a 10% real increase in public transport fares has generated an intense negative reaction from readers.

If the Government went ahead with the touted increase, the paper calculates that combined with CPI increases, the cost of a weekly zone one myki pass would rise from the current $30.20 to $34.90 in 2013, or by $4.70 per week. The equivalent zone two pass would rise from $51.00 to $58.95.

Out of well in excess of 100 reader comments on the story, only a handful defended the proposition. The overwhelming view is the system is so broken it would be outrageous for the government to ask beleaguered users to pay more. While many say they’d be prepared to pay more if it meant the system were improved, quite a few think public transport is already too expensive at current fare levels – indeed, a number argued public transport is a “public good” and should be free.

Some warn higher fares would be self-defeating because they’d encourage further fare evasion – equivalent revenue could instead be raised by getting serious about evaders. Another objection is that recent increases in patronage have raised enough additional revenue to obviate the need for increasing fares.

There’s also a common sentiment that increasing fares would increase car use and hence be bad environmentally. A surprising number reckon the increase would make public transport more expensive than driving.

I think The Age has taken some licence here. Current policy is that fares increase in line with inflation, so some of the prospective rise is going to happen anyway. By itself, a 10% increase (i.e. a 5% increase in each of two consecutive years) would put up the cost of a zone one weekly myki pass by $3.10 per week. The corresponding increase for a zone two weekly would be $5.25 per week.

Still, I don’t think even these somewhat lower numbers would 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 public transport advocates who undertook the Independent Public Inquiry into Sydney’s long-term public transport needs think it’s a good and necessary idea too.

The argument that fares shouldn’t be increased because the system is flawed is politically potent but counter-productive. More revenue is one of the crucial inputs needed to improve the system. Better service is a much more important driver of patronage than fare levels.

Fares aren’t in any event expensive relative to the cost of the service provided. They’re already heavily subsidised – fare box revenue in Melbourne only recovers 44% of operating costs and none of the capital cost. Moreover, fare revenue is around 12 cents per passenger kilometre – that’s around average for Australian cities but considerably lower than some major cities in New Zealand, Canada and the United States (see exhibit).

There’s a sense of perspective missing here. For all its failings (and I’m not suggesting they aren’t real), the public transport system in Melbourne is still delivering a reasonable service. In fact it’s been good enough to support spectacular jobs growth in the transit-dependent CBD over recent years – employers are prepared to bet on it.

There are good reasons for pursuing revenue foregone through fare evasion, but it isn’t a magical hollow log. Collecting the marginal dollar entails substantial and increasing costs, such as employing more inspectors (or conductors). Likewise, recent boosts in patronage have increased revenue, but they’ve also raised operating costs and required more investment in infrastructure e.g. new trains.

The argument that higher fares will increase driving isn’t convincing either. While there would undoubtedly be some drift at the margin, the great bulk of public transport users are “captive” in the sense that they either can’t drive or motoring is simply too expensive due to high parking costs and traffic congestion. Even a one-off 10% real increase isn’t going to change that equation substantially (although I expect it could well give a modest boost to cycling).

The key market for public transport is work trips to the city centre. The CBD couldn’t exist in its current size and form without transit. There’s no convincing reason – on either efficiency or equity grounds – why CBD employers should have the travel costs of their generally well-paid workers subsidised by the rest of the population by holding down fares (in an ideal world I’d favour a tax on central city employers to supplement funding of transit services but that’s another story).

Despite what some readers of The Age think, public transport is not a “public good”. It’s neither non-rivalrous nor non-excludable – it gets congested and users pay. Of course it has a social function but so do water and energy. As is usually the case with these utilities, subsidies should be directed at eligible users, not bestowed on all passengers via the fare structure irrespective of income .

Overall then, I think increasing fares in real terms is a good idea. However I don’t see fares as the only source of revenue – CBD businesses should be paying too (and Sydney’s Independent Inquiry also identified a number of other potential sources of funding). I’d also like to see attention given to the fare structure, so that among other things, it provides further incentive for travellers to shift to non-peak services. Read the rest of this entry »