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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).

The argument that foregone fare revenue could be replaced with taxes on property owners is a furphy: an irrelevant argument. That’s just one of a large number of ways that any initiative, of which free public transport is 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 free.

So in my view there’s not a lot of sense in giving a free ride to all those existing “captive” public transport CBD commuters and students who don’t really have an alternative to public transport. Nor is there a lot of sense in subsidising people to take more low value trips, especially when they’re mostly not at the expense of driving and will increase costs well beyond the initial $600 million – the real extra cost could easily be in the billions.

My view is ticket revenue should be kept and applied to improving transport in ways that provide a clear social benefit. Travellers are more likely to respond to an increase in the speed and convenience of public transport – relative to the car – than they are to lower out-of-pocket costs.

Improving the quality of public transport will help – for example by providing greater connectedness – but the real secret to increasing its mode share, as I’ve argued many times before, is to increase the cost of car travel. That might or might not come about as a result of peak oil, but the only assured strategy would be to put a price on access to road space.

_________________________________________

*NOTE: I arrive at my estimate of $600 million p.a. net revenue from fares as follows: For 2009-10, this report by the Ombudsman shows ticket sales yielded $638 million revenue, plus $15 million in fines levied on fare evaders. I round that up to $700 million to reflect the current year.

On the cost side, 545 ticket inspectors @ $100,000 p.a. (including on-costs, etc) is $55 million p.a., but according to Metlink they also improve customer safety, provide customer information and help during special events. So I assume one third are kept, reducing the saving to $37 million p.a. Myki’s a sunk cost (like turnstiles, etc) so there’s no savings there, but I’ll assume there’s another $13 million p.a. in ticket-related costs that will no longer be incurred. That gives a total saving of $50 million to set against the $700 million revenue. Even if you think ticketing costs are higher, there’s a lot of leeway there.

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  • 1
    Posted September 5, 2011 at 4:42 pm | Permalink

    More material on this issue here: http://www.ptua.org.au/myths/free.shtml

  • 2
    Posted September 5, 2011 at 4:46 pm | Permalink

    PS. My blog post and pic from 10/7/2010, when Melbourne’s entire PT system was free – yet still plenty of people drove into the CBD: http://www.danielbowen.com/2010/07/30/fare-free-friday/

  • 3
    Posted September 5, 2011 at 6:39 pm | Permalink

    Good write up Alan. I agree that making PT free will not greatly increase the number of users, nor reduce the total number of car trips taken (any people that switch to PT would suddenly be replaced by people taking additional trips or other people switching from PT to driving as additional crowding makes it less desirable.

    About my only point of difference is that I don’t agree in road pricing. Its an inequitable solution that will not reduce congestion (you’ll just have richer people driving more than poor people). The only real appeal of road pricing I can see is that it could provide more funds to improve alternatives to driving, but there are other ways to fund this (like not spending as much as we currently do on roads).

    A better alternative to increasing the “cost” of driving is to allow congestion for cars to build up, whilst introducing more priority measures for public transport and allocating more road space (and separated infrastructure) for bikes.

  • 4
    Posted September 5, 2011 at 6:48 pm | Permalink

    Julian, re your objection to road pricing, some quick questions:

    - Yet you don’t oppose charging for public transport?
    - What would the world look like now if electricity had always been free?
    - What do you know about the equity effects of traffic congestion?

    Also, congestion pricing is not good for maximising revenue – that’s why the toll road operators don’t use it.

  • 5
    Posted September 5, 2011 at 8:11 pm | Permalink

    I don’t object to charging for public transport for the myriad of reasons you’ve mentioned above.

    Whilst the costs of road pricing would not necessarily be very high, they’re on top of the other costs that people that drive must already pay: the cars themselves; maintenance; petrol; insurance; registration; parking; etc.

    The suburbs that predominately don’t have decent public transport alternatives to the car are also for the most part suburbs where the average income is lower, where families are less likely to be able to choose how many cars they own and in a lot of cases where workers will have less flexibility to negotiate or be picky about what time they start work. Road pricing costs will likely hurt these areas more than they hurt affluent suburbs that do have alternatives and thus can avoid congestion pricing if they want to.

    As for your last point, it still does raise revenue, which was one of the main selling points of introducing it to London, the money supposedly went back to improving the quality of alternative transport in London.

    As for the equity of congestion, it probably hurts the same people I’ve identified above, but as congestion charging hasn’t been shown to reduce congestion for the long term anywhere its been introduced, one cost is still better than two.

    The best solution is to provide a decent alternative to driving to as much of the population as possible.

  • 6
    Posted September 5, 2011 at 8:52 pm | Permalink

    It’s a vexed question, but I still support the removal of all fares, in conjunction with more expenditure, sourced through taxation, to expand and improve the service.
    Peak oil will have a significant effect on private car travel, but it will also impact on the delivery of public transport. I’d prefer to see significant investments in PT now while we’ve still got cheap energy, rather than later regretting putting all our eggs in the private car basket.
    However all those freeways and road improvements will make excellent bicyle super-highways; as a teenager, my mates and I would ride our 10-speeds along the Eastern Freeway from North Balwyn to Abbotsford and back while it was under construction!

    BTW: I heard a rumour that the State Government (bless ‘em) are planning to construct park’n'ride facilities on the old sidings at Victoria Park railway station; end of trip facilities for freeway users. The potential housing lost from that site can be added to the fringe in one of the logical inclusions – those folk will enjoy having a place to park their junk after their trip along the freeway.

  • 7
    Posted September 5, 2011 at 11:21 pm | Permalink

    Alan, I think you are missing the point. Any form of tax (and since p/t is not market driven, that is effectively what fares are) ought to be considered from an efficiency perspective. The problem with fares is that, as a form of raising revenue it is pretty close to the most inefficient and intrusive method you could devise. If fare collection had elastic effects on the number and types of patrons that might be worthwhile, but I am not convinced it does.

    Most of the downside effects you propose already exist because of the size of the subsidy. Inequity would be considerably lower if revenue was raised geographically; problems of city growth (to the extent that p/t can effect that) aren’t dealt with adequately by the existing fare structure anyway. Revenue increases to fund infrastructure would likewise be considerably easier to implement if it was accepted that a community will pay for it (or alternatively, considerably harder, because communities would refuse infrastructure they don’t actually want).

    You are right that Myki is a sunk cost, but that is merely a sign that debate over the value of what has become an enormous expense ought to have occurred earlier. In any case, it won’t last forever: no more than 10 years based on precedent.

  • 8
    Factory
    Posted September 5, 2011 at 11:24 pm | Permalink

    “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*.”

    “(at the moment public transport covers around a third of its operating costs).”

    So does that mean that it is now costing 1.8 billion pa to run the melbourne transport system?

  • 9
    Posted September 5, 2011 at 11:32 pm | Permalink

    Daniel, looks like your revenue estimate matches up pretty well with the Ombudsman’s. Do you have any working detail on how you calculated your collection costs (I assume your estimates include the cost of Myki)?

  • 10
    Posted September 6, 2011 at 9:33 am | Permalink

    Let me just understand your numbers. You suggest a scenario of public transport use increasing by half, but guess it would be existing users just taking more trips.

    That’s a lot of trips by people like me, Alan. Especially since many users have monthly passes for whom an extra trip is already costless. So the 50% increase has to come mostly from those PT users who currently buy trips only individually. I find this dubious reasoning.

    And somehow, crowding on trams would get worse despite the fact that it’s the same users taking extra trips? We must be masochistic.

    For me, there is little doubt that free PT would increase patronage and decrease road congestion. The question is – is there a net benefit to society (PT users and road users combined) of doing so?

    There will clearly be an increase in services as demand goes up, decreasing wait time and making PT more attractive to all. This would be offset by overcrowding at peak times.

    In the end, the wealthy will still choose to drive their expensive cars on roads, however priced. I imagine a fair number of them would be happy to pay to keep the great unwashed in trains, so that they can feel the wind in their hair in peace! Is this a Coasian solution?

  • 11
    Posted September 6, 2011 at 9:34 am | Permalink

    You’d need to add back the ticketing costs, so using my estimate of $700 million p.a., a third makes operating costs about $2.1 billion p.a.

    That figure of “about a third” is based on the estimated average of 36% for public transport in Australia’s five largest cities, derived from this report.The range is 25% to 45% but I don’t have the numbers for individual cities. So you could say operating costs lie within a range of $1.5 billion to $2.8 billion, with an average around $2 billion p.a.

  • 12
    paul
    Posted September 6, 2011 at 9:53 am | Permalink

    Alan
    Agreed that we need to charge for public transport for the reasons you put forward.
    Overall Melbourne has a fairly reasonable and cheap service – but perhaps the zone 2 ticket could be eliminated – the community would benefit more if these longer distance commuters were more likely to take public transport – they generally are less able to afford higher ticket prices.
    Making dedicated facitlites for bikes would also be encouraging – if you could get commuters rinding two or three km’s to the train station then you would significantly increase the reach of outer suburban rail network – look to Denmark where every second carriage has space for about 10 bikes in a rack system.
    I still favour a congestion tax for trips to the CBD – many of the journeys to the CBD are by people who really should be taking public transport and if we could encorage them away from driving then this is a plus – if the tax was only applied for trips before 10am and after 4pm – this would not hinder retail trade too much – just the commuters whose cars just sit in parking lots all day.
    Of course the other side of the issue is the supply of transport – despite what we are told the frequency is not up to global standards – London tube trains are ever 2-3 mins. We should be aiming for rail frequency of 6 per hour as a minimum all day every day – and why it does not run all night really escapes me!
    Cheers

  • 13
    Posted September 6, 2011 at 9:59 am | Permalink

    I don’t think you’ve got the right handle on what I said there. The relevant quote is: “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….”. So it’s not just existing public transport users.

    Your point though that some existing users have monthly passes is a relevant one (but how many?). Since this group already pay zero marginal cost, making public transport free isn’t going to change their trip behaviour – so what would be the point of making it free for them?

  • 14
    Posted September 6, 2011 at 10:31 am | Permalink

    I certainly agree with the proposition of improving bike storage at rail stations, but the real emphasis to increase the rail networks reach really must be improving bus to train transfers.

    Bus interchanges should be built right into station ticketed areas wherever possible. Where this is not possible, the stops should be as close as is physically possible with the least exposure to weather in between.

    Timetables should either be frequent enough that about a 10 minute wait is your maximum, or timetables should be coordinated using a pulse system so buses arrive a few minutes before the train (allowing passengers to get off the bus and onto the train) then leave a few minutes after (to allow the opposite). Some cross suburban passengers would be disadvantaged by the wait at the station, but the majority would still be better off. In many cases different rail stations could simply be the two end points for bus routes.

    This doesn’t just go for stations, but all buses that are travelling from one major trip generator to another should be stopping at the same stops around stations (my personal experience was the buses to High Point from Footscray station that used to leave from around the corner from each other, whilst you checked the timetable for one you’d frequently miss the other!).

  • 15
    Posted September 6, 2011 at 12:32 pm | Permalink

    “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.”

    Umm, rego doesn’t cover road expenses at all. It is just for insurance and paperwork.

    Council rates and general revenue cover road works.

  • 16
    Posted September 6, 2011 at 12:40 pm | Permalink

    The revenue might very well be applied to that purpose, but you’re buying a right to use the road.

    (Actually a common understanding is that rego pays for road damage and that’s why bigger vehicles pay more).

  • 17
    NotCoffee
    Posted September 8, 2011 at 10:14 am | Permalink

    I’ve been thinking – given the low price elasticity of peak-hour travel and relatively high price elasticity of off-peak/weekend travel, and the high proportion of income/patronage generated from peak travel, what would be the cost of making services free except for travel in, say, the peak 2 hours in each direction, given that there is already quite a bit of spare capacity on most off-peak services.
    What would be the effect of going partially or wholly fare-free for a few years in an effort to change behaviours, then switching back to a paid model?

  • 18
    Sam
    Posted September 8, 2011 at 10:18 am | Permalink

    The registration and fuel excise for heavy vehicles (over 4.5 tonnes) covers the allocatable costs of road use for the average vehicle in their class.

    This isn’t the case for passenger vehicles, most of the weight based charges in Australia for passenger vehicles are proxies for environmental impact.

    I agree though that you have to buy the right to use a motor vehicle on the road. Registration charges are much like annual public transport tickets – which also buy you the right to use public transport.

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