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Should public transport be subsidised?

Index of subsidy per household and selected CityRail weekly tickets (including inflation). Source: IPART

Public transport travel in Australia’s capital cities gets a massive, growing financial subsidy (see exhibit). Passengers don’t pay for any of the capital costs and on average only pay for around a third of operating costs. Yet in spite of the subsidy, public transport only accounts for around 10% of all motorised trips.

The single largest group of beneficiaries are those who work in the CBD. They’re the main reason transport authorities have to provide enormous capacity to meet demand in the peaks. They don’t however tend to use public transport in the off-peak when there’s plenty of spare capacity – they prefer to drive.

A key question is why CBD workers – or any traveller who doesn’t qualify as disadvantaged – warrants such a massive subsidy.

One of the traditional justifications is equity. Yet most passengers aren’t on low incomes – indeed many are on quite good incomes. In fact most passengers aren’t even entitled to one of the many and varied concessions offered by transit authorities (not that even these necessarily indicate need – for example, in Victoria anyone aged 60 years or more is entitled to a generous Seniors concession, whether they’re working or not).

Other essential services like electricity, gas and water recover their full financial cost, both capital and operating, from customers. They target concessions to those who actually need them. Public transport however subsidises everyone who uses it irrespective of their means.

The irony is public transport isn’t actually very good at transporting those who really do rely on it. The key requirement of travellers who’re wholly dependent on public transport is for off-peak and cross suburban services (these are the 90% of motorised trips that everyone else uses cars for), yet what’s offered to them in Australian cities is of very poor quality.

And that’s primarily because governments chronically under-invest in public transport. It shouldn’t be a surprise of course, since governments have to provide all the capital and then fund an ongoing operating subsidy. For example, CityRail in NSW recovers none of the capital cost in fares and only 22% of operating costs.

Contrast this with major road projects. Many of the freeways constructed over the last twenty years in Australia’s capital cities were built and operated with private finance. The direct cost to government in terms of current outlays is small, so it’s no wonder they’ve historically favoured freeways at the expense of public transport.

The paradox is those who most need public transport suffer a grossly inadequate level of service in large part because public transport is so heavily subsidised. That subsidy is ostensibly intended to help them but arguably has the opposite effect. The main beneficiaries of subsidies are travellers who by any fair or reasonable measure don’t warrant it.

Another traditional justification for subsidising public transport is negative externalities, particularly traffic congestion and the environmental impact of cars. Neither of these hold up well to closer examination.

We already know new public transport projects do no more to mitigate traffic congestion than building new freeways do. Traffic congestion needs to be tackled by the combination of road pricing and more and better public transport services, but that doesn’t require it to be subsidised. All that matters is the relative price to the traveller of driving versus public transport.

The environmental justification is also weak because in many cases cars aren’t a substitute for public transport. The vast bulk of CBD travellers are “captive” to public transport – driving is not an option for them because the journey’s too far and the cost of parking is too high. And those who’re entirely dependent on public transport – like students, the handicapped and the poor – by definition don’t have the option of driving.

There’s also a “public goods” argument that mercifully is trotted out with decreasing frequency. It’s now pretty widely acknowledged that public transport isn’t a public good in the economic sense. It’s neither non-rivalrous (just ask a passenger on a crowded peak hour train) nor excludable (just ask someone whose negotiated a turnstile or been bailed up by a ticket inspector).

This line of argument gets mixed up with the fact some forms of public transport in Australia have historically been provided by government. There’s an argument for public sector delivery, but it’s got very little to do with whether or not public transport should be subsidised.

I think there are very good reasons to seek to recover a greater proportion of the cost of providing public transport from those who benefit directly from it. That would provide more revenue to build a better system, lower the disincentive to governments of ongoing subsidy, and be less regressive.

Business is one candidate. For example, CBD businesses and landowners are prime beneficiaries of public transport’s ability to deliver large numbers of workers to a very small area within a remarkably short time frame.

At present, the cost of ennabling those agglomeration economies is mostly borne by taxpayers and to a limited extent by employees. Some of that cost could instead be recouped by, for example, taxing businesses directly or by taxing property. There are a number of options that come under the rubric of “value capture”.

Another option is to increase the proportion of costs recovered through fares, especially in the peak. Provided it’s matched by a commensurate increase in the cost of driving – for example via some form of road pricing or by way of a reduction in road capacity – it should not lead to a decrease in public transport patronage.

Most importantly though, concessions should be targeted directly and precisely at those who need them and no one else. The rest of us should start to pay more. We already pay the full financial cost of other essential infrastructure, so we should pay a higher share of the real cost of providing public transport.

We need to start paying more of the real cost of driving too. It’s surprising how little independent research there appears to be on this subject, but my best guess is drivers probably pay in taxes and charges the equivalent of their full financial cost. What they don’t pay however is their full economic cost i.e. negative externalities.

I have no issue with subsidising public transport in those cases where it really does avoid the negative externalities of cars. However I think it’s always a better principle, where practical, to charge (or regulate) motorists directly for their negative impacts.

The scale of investment required to establish a high quality public transport system along the lines of what I proposed here is massive. It’s not likely to happen for generations unless sources of revenue to build the infrastructure are found. And it’s going to be hard to get up while ever operating subsidies give governments a continuing disincentive to invest in public transport.

The key obstacle to more efficient and equitable pricing of both cars and public transport is political. The opposition would be diabolical – look at what happens when fares are raised marginally above CPI.

Any changes along the lines I’m suggesting will realistically be incremental and take some time. Of course increases in the cost of public transport have to move in lockstep with increases in the cost of motoring.

However it makes good sense to get the direction right. There’s considerable value in understanding conceptually that some deserving users of public transport should be subsidised but not the system as a whole.

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  • 1
    Krammer56
    Posted May 15, 2012 at 10:07 pm | Permalink

    The main argument used in favour of cheap travel of all sorts is that is is “good for the economy” – it lowers input costs and hence increases productivity. Of course, the subsidies and externalities are clearly drags on the economy elswhere and constrain the funding for other, possibly more productive investments. They also distort the price signals so favoured by economists, leading to inefficient (over-)use.

    Also, as we have recently seen in Melbourne with the $1.5B M1 Upgrade, investment in getting more people to and from an increasingly congested CBD is horrendously expensive and in the end delivers only modest, if any, improvements. Investment in more of the same suffers from diminishing returns.

    As for investing in major CBD-oriented PT projects, while one can argue that at least they aren’t making the environment worse (unless you live in the Latrobe Valley!), as you so rightly point out they don’t serve the vast majority of the transport needy. Of course making improvements in this regard doesn’t need to involve major investment. Buses operate on roads that have already received investment. And while they may not be sexy enough for steel-wheel fanatics, they can be readily and flexibly designed to go where people need to go.

    On top of that, we actually have lots of spare capacity in our transport system – in the counter peak direction, and during off-peak, evenings and on weekends. This is where pricing signals can really make a difference.

  • 2
    Russ
    Posted May 16, 2012 at 1:09 am | Permalink

    Alan, I’m not sure I agree the main beneficiaries are peak travel users. It depends a lot on how you examine the cross-subsidies built in the system. In Melbourne, a few years ago, the tram network was carrying 150m passengers on $150m subsidy, trains 150m on $300m, and buses 80m on $300m. It isn’t hard to see how a combination of slight fare increases and service culling could allow the tram and train services to break even. And, given the majority of trips occur in the peak, it is really the case that peak travellers are subsidising services they don’t use in off-peak times and the extensive under-used suburban bus-routes with less than 5% farebox recovery.

    I’d imagine the peak CBD users would be relatively happy to pay a levy for a capital project that significantly improved CBD accesss. But increasing fares to improve cost recovery on services that the people being charged aren’t actually using is no more “fair” than taxing from general revenue. Lumping all public transport together hides a lot of inefficiencies in the structure of routes and services.

    Russ: The issue of internal cross-subsidies is a hard one. Some customer segments, some lines, even some stations, probably contribute more to revenue, or cost less per passenger, than others (although I expect peak users contribute more to capital cost). The same issue arises with some other utilities e.g. electricity generation and supply. I’v put it in the “too hard” basket – implicitly treated it as a separate issue – for the purposes of this post. AD

  • 3
    IkaInk
    Posted May 16, 2012 at 2:24 am | Permalink

    I agree with a fair chunk of what you are saying here, but certainly not all of it.

    I think the absolute first step that Australian governments must take is to look at what public transport improvements can be made that will have an elasticity of demand greater than one. You’ve said it will cost a fortune to implement the sort of public transport network you imagine in Melbourne (an anywhere to anywhere grid), but I don’t think that is necessarily the case. Melbourne already has a trunk system that needs little in the way of expensive upgrades, whilst we have a huge fleet of under patronaged buses running silly, long and expensive meandering routes through our suburbs.

    If the bus network was re-arranged to run down arterial roads, given much more dedicated road space (the same should also happen for trams) and timed where possible to connect with trains and trams, then I would imagine farebox recovery improvements would outweigh the investment costs needed. It is worth noting that Toronto manages to recover over 50% operating costs through farebox and that about 70% of rail passengers arrive by bus. This is because anywhere-anywhere networks operate much more efficiently outside of peak than commuter networks.

    IkaInk: Note I’m not talking specifically about Melbourne or any other particular city in this post (or in the “anywhere to anywhere” one). You raise a good point though – how much of the capital and operating subsidy might be recovered through efficiency improvements? AD

  • 4
    hk
    Posted May 16, 2012 at 8:58 am | Permalink

    Public transport (PT) contributes to the mental health and wellbeing of our community. Maybe the public transport system falls into the same category as other community benefiting services and facilities, such as public parks.
    The question then is how much should the community that PT serves contribute?
    Some estimates indicate that more than 30% of the population are unable to have their travel needs met by car, often because of their age. The people deprived of car transport still need to move around in the urban system. The providing of on-demand PT such as taxis is more effective and efficient in off peak periods. However many more years of intelligent transport technology application are required to displace the current institutionalized constraints with their stakes in cross-subsidy.

  • 5
    Burke John
    Posted May 16, 2012 at 10:26 am | Permalink

    “The single largest group of beneficiaries are those who work in the CBD. They’re the main reason transport authorities have to provide enormous capacity to meet demand in the peaks. They don’t however tend to use public transport in the off-peak when there’s plenty of spare capacity – they prefer to drive.”
    Therein lies the key. In fact individual motorists are far more generously subsidized than users of public transport. Everybody subsidizes motorists. Pedestrians, cyclists, users of public transport and coma patients in hospital for the last decade or more.
    These unfair imposts on non-drivers are largely unnoticed or unremarked on though they represent billions of dollars lost to our economy. Urban sprawl and associated extended commute distances are 2 of these hidden costs. The exorbitant cost of real estate is another. The incredible “cost of free parking” is an interesting google topic.
    If public transport were subsidized to the level of private car usage then perhaps those inner city commuters would take public transport on weekends as well.

  • 6
    Cyclesnail
    Posted May 16, 2012 at 2:08 pm | Permalink

    Can we add the infrastructure required to get people to cycle instead of using public transport or cars into the argument?

    It is my opinion that the economic benefits of using bicycles instead of cars are considerable – a Danish report puts the net benefit at 20 cents per km, and a study done in Sydney last year showed $3.88 in benefits for every dollar spent.

    Cyclesnail: Increasing the cost to the traveller of driving or taking public transport makes cycling relatively more attractive. AD

  • 7
    Last name First name
    Posted May 16, 2012 at 4:20 pm | Permalink

    Cyclesnail, I agree at 20c per km we could do the following.
    Bicycles and electric bicycles enlarge public transport catchment areas, making cross suburban travel easier across radiating rail and express bus routes. Australia needs to better integrate between alternative transport modes they do in Europe and Japan. Europe and Japan have greatly reduced car use and multiple car ownership in households because of their need to be less reliant on fuel price increases and future fuel shortages.

    The price of Australia’s imported oil is now U$ 95 a barrel and will inevitably double in a few years. Outer suburban households are going to need bicycle networks and shared car
    services that connect with new stations and new trunk express bus routes. The
    Netherlands, Germany, denmark and japan are also promoting bicycle access to stations and other transport stops/hubs which is an effective, practical way of increasing the catchment area of each station.

    Riding a bicycle uses the ergonomic ‘mechanical advantage’ of pedalling over walking to go at least 3.5 times as far, for the same physicaleffort. Cycling rather than walking increases the number of homes with access to stations by around a factor of 10.The electric bicycle increases the number of homes with access to public transport by at least a factor of 20 over walking . The limitation of radiating rail lines for commuting is largely eliminated by the pedelec.

    This is why Australian modal interchanges and rail stations need to become a highly visible focal point of surrounding bike networks and become the objective of land use development and urban renewal. The use of pedelecs could become the main means of local transport and to access rail stations or express and trunk bus routes, providing that secure parking is available.

    Our capital cities have sprawled In the hilly parts of Australia and 250 watt electric bicycle would enable able-bodied people to cycle much more than they do now which is an important safety consideration because of the need to ride up hills without weaving. It reduces the speed differential with motor vehicles when riding in the kerb lane or a bike lane. This why the Australian cycling organisations recommend a 250 watt power output for electric bicycles .

    Electric bicycles could be used to enhance personal mobility in hilly areas much the same way as bicycles do in flat cities. In Japan , housewives and elderly cyclists start to give up cycling when it becomes too strenuous but with 250 watt power assistance they will use them. In the last five years 600,000 cyclists in the Netherlands have bought 250 watt electric Bicycles.

    A strategic transport planning perspective of investing in urban bikeway networks and reduces the demand for coal fired electricity which is the most sustainable way of all to reduce GHG emissions. At night electric bicycles could be charged with off peak mains electricity or from “backup batteries” in ‘car parking spaces ‘at places of work, study, shop or play, The “back up batteries” could be charged from roof top solar cells during the day. This is the way to provide for the cross suburban and off peak travel patterns of motorists.

  • 8
    lindsayb
    Posted May 16, 2012 at 5:14 pm | Permalink

    I’d be surprised if the per-driver subsidy for roads was less than the per-passenger subsidy for public transport users, given the cost of continually building freeways further and further from our CBD’s and repairing the roads destroyed by freight trucks. Subsidising public transport seems economically rational even without considering the externalities of health, pollution, and cost of importing oil.
    Looking a little down the track, with oil costs increasing significantly, no obvious alternative car technology around the corner, and the very real possibility of a significant recession/depression of our economy, expanding both the public transport system and the cycle/e-cycle catchment network (as cyclesnail and lastnamefirstname describe) makes a lot of sense.
    Even the cyclist haters you see commenting so frequently might be glad of a safe cycle/rail transport network if the lose their jobs or when oil becomes so expensive that most people can no longer afford to drive.

    lindsayb: You should read Glazebrook’s analysis then. Bear in mind I’m talking about the financial cost in the post, not the economic cost. Also, I’m talking about passenger cars, not trucks. It’s not hypothecated to roads, but drivers pay the $0.38/litre excise tax plus rego. Note also roads are used by buses and trams. AD

  • 9
    michael r james
    Posted May 17, 2012 at 2:53 pm | Permalink

    AD writes: “Bear in mind I’m talking about the financial cost in the post, not the economic cost”

    Exactly, so yours is a very one-eyed view. And one that is condemned to grotesque distortion of any view of the long-term public good. No, really, it means such an analysis is not worth the paper it is printed on. The road-only based planning in all Australian capital cities is unarguably unsustainable–as is clearly obvious today let alone in another ten years of growth.

    And in any case it is false to say those PPPs have not cost the government anything. In Brisbane one of the (failing) tunnels has received $600M in direct (fed & state & local) subsidy, and we’ll see how much more public money will be involved in the eventual bail-our of these entities.

    The conditions the companies have forced on governments, combined with inaction on public transit, means that users have been forced into using those expensive roads and paying those tolls. And your comment:

    “Note also roads are used by buses and trams”

    This shows up another huge weakness in the argument. The toll road users build in various egregious conditions (ones that should be illegal in a democracy, probably are in the US), such as not allowing the government to build any roads that would divert traffic from their tunnels (eg. Sydney cross-town).

    And of course the idea of using those hugely expensive freeway routes to build public transit is not on the table (the future real cost of that is beyond calculation). For example the way the LA freeways are being used (admittedly in a relatively minor way): the extension of the Green Line metro to LAX airport is down the middle of the Century Freeway. All roads in LA (and California) are publicly owned. Refusing to build a railway to Tullamarine is another example in which the state ensure private profits of owners of freeways and airports. These roads and associated entities are in fact heavily directly and indirectly subsidized.

    And not least, the tolled freeways in our cities are a grotesque case of cherry-picking to ensure profit without picking up the massive bill for maintaining the rest of the road network, without which of course the freeways would be useless. But worse, as I said, these roads cannot and are not solving people movement within our large cities. Examination of any comparable cities anywhere in the world would show that, so it doesn’t even come down to cost: whatever the claimed cost differential (between allowing private roads versus public transit) it is simply irrelevant because one can solve the problem the other never can.

    Again, take LA as the perfect example. If building roads (whether private or not) could solve the problem why did LA–the ne plus ultra of car-dependency–essentially stop building them in the early 70s? And today is spending humungous amounts to (re)build its Metro system?

    Michael: Talk about straw manning someone! OK, “post” is the wrong word. I was talking about the financial cost in that specific “remark” at #8, but I do refer to the externalities associated with cars. I’m not denying they exist, it’s just that this post is about financial issues, specifically the level of actual dollars from the budget required to subsidise public transport. AD

  • 10
    Sandgroper
    Posted May 17, 2012 at 3:02 pm | Permalink

    You might like to check out the Perth Parking Management Act (http://www.transport.wa.gov.au/20228.asp) which charges owners of non-residential CBD parking bays (on and off-street) a fee that must directly fund improvements to sustainable and active modes of transport in the CBD. Free CAT buses now run regularly, a new bike network is about to be deployed and it can be argued it’s encouraged the Perth City Council to turn its transport hierarchy on its head (1. Pedestrians, 2. Cyclists, 3. PT, 4. Taxis, 5. Cars). Although it doesn’t directly benefit non-CBD off-peak services, it displaces the investment that would otherwise be needed in an increasingly over-crowded CBD.

    Also, WA’s travel behaviour change program TravelSmart has been used successfully with PT upgrades to encourage a much larger portion of people to use the new services, especially in off-peak times. At a cost of 1/1000th of the cost of PT upgrades, it gets an average 10% (>30% with new rail) increase in patronage. Plus patronage grows year on year even after the program ends (see Bus patronage pdf in Town of Cambridge zip file at http://www.transport.wa.gov.au/activetransport/24690.asp)

  • 11
    michael r james
    Posted May 17, 2012 at 3:44 pm | Permalink

    BUT Alan, you always reply like that. You want to create a false argument over a narrow part of an issue while ignoring the most important, indeed the only important, issue there is: how to obtain a transport system for big cities that works long term.

    Why should you restrict my (THE) argument and try to prove some little financial case isolated in its bubble, is an argument worth having. It’s not, and it only feeds into supporting those neanderthals (Campbell Newman, BOF and Baiillieu et al.) into false accounting –in believing they are doing the right thing by not spending public money today but ransoming for tomorrow and a long time, not just the public but the entire development of our cities. Exactly the same kind of incredibly narrow econometric thinking led to hyper-expensive and totally unnecessary desalination plants in the same east-coast cities, the costs of which we are lumbered with for decades. Costs which are about 2x what they would have been if publicly built (of course if the public had to pay for them upfront they would never have been built, which would have been the correct decision; and it would have been the correct decision even if we were still in drought.).

    Your article is false on the most basic of tenets. What is worth doing in our cities.
    It is the most basic stuff: forest versus trees stuff. Get that decision right and the rest (and the associated costs) are just details.

    Michael: When I write the definitive book on cities I’ll cover every issue that can be imagined, but for now I’m just looking at one specific issue or aspect in 1,200 words. In any event, while I’m focussing on the financial here, I explicitly address externalities in the post anyway! Getting attacked for what you didn’t say – hmmm, is that what the Inquisition was about? :) AD

  • 12
    Wombat
    Posted May 17, 2012 at 3:55 pm | Permalink

    Allan,
    taxpayers pay to establish and maintain infrastructure for transport for themselves. They include the users of cars on roads that pay again when they buy registration, pay insurances, traffic fines, policing and add-ons from over management like TAC adds on TV. Though it has some economic benefits, traffic fines and parking fines also divert money from the businesses in the economy, where it is taxed, to local and state government coffers. All of these costs together go nowhere near the costs needed to keep cars on roads.

    All taxpayers pay for the additional road construction and maintenance, policing, the courts, jails and time people spend in jails, parking inspectors, car park space construction and maintenance not done by the private sector. Then there is increasing the costs of sub contracts for speed camera maintenance and installation, painting of lines on the roads, traffic signals and a good percentage of road lighting and road maintenance not covered by registration fees and often also sourced from the federal budget – and taxpayers again.

    Further costs generated by roads are the weekly or in big cities, daily, tens of thousands of hours of lost productivity due to poor road design and insufficient public transport. The demonstrable health impacts of too many cars are another cost

    Freeways are the most expensive way of moving cars – designed to that take cars of other roads they occupy land that once generated rates, building and property sales, parks and gardens that generate tourism etc. and replace that economic growth with massive un-capped maintenance and other costs that will grow into the future – additional traffic jams and pollution.

    The economic value of public transport comes from getting people off roads -greatly reduced death injury rate from users compared to car users, its ability to shift between 40-400 people with a single motor along rails with low maintenance costs compared to roads. The extremely low costs of enforcement and very few deaths and injuries per kilometre traveled.

    With the population growing along with the demand for travel to maintain a huge variety of visits across the economy no government can afford to have millions of people wasting time driving cars that are going nowhere in traffic jams.

    Rural and public transport delivers tourists and their spending where it is run well – which is also why Melbourne has conductors on its city circle trams.

    Though there are economic benefits from the auto industry and the huge numbers of jobs it creates, even from injuring and killing people, when a realistic approach is taken to economic analysis, actual figures of actual costs are tallied, public transport for both individuals (and freight) provides the only long term way of offsetting the subsidies to cars, road construction and maintenance. This is especially as the costs will increase faster than inflation as the price of fuel sky rockets. With Public transport these costs are spread across vast numbers of people – passengers.

    This is where when you start quoting in a reply ‘Economics’ to make that ‘oh so fine theoretical distinction’ between financial and economic costs I am reminded that the discipline of economics is one of the arts – not sciences. Whether it is right or wrong is a bit like arguing who likes which painting and why – who likes which economic theory and why.

    The accounting used to determine how much of taxpayers money is required to support the transport of people and goods has the kind of hard figures that can be compared and monitored. Your subsidy argument relates to the art of ‘economics’ – how economists at universities and that advise governments see things. It is also religious – which makes you even harder to follow – in that you do not highlight the costs of privatising public transport. This has created both additional costs and massively reduced services because economists advising government cannot ‘paint past’ the mantra ‘that private is always more efficient than public’.( Ever rung Telstra with a problem?)

    The people who used to work on public transport (in power stations, maintaining phones, building roads bridges and even prisons) when it was publicly owned, and where it is still, have a sense of pride in their work – their work for the community – that economics like that you have used denies exists – reducing human behavior to shared greed – the current fad in the art of economics.

    The premise and analysis of your argument is wrong but useful – it reveals the simplistic pseudo free market thinking that creates massive needless public expenditure – a weird form of communism masquerading as ‘free enterprise’.

    If what you say is true then one should be able to identify countries without public transport as prospering compared to those with it – so how do you explain Germany – or locally Perth?

    Your premise is wrong – your assumption that any of the figures you have provided represent a subsidy is wrong – unless you put public transport is some fairy bubble as if it is disconnected from the rest of the economy. In another fairy bubble you and too many others that use this dismal narrow retarded analysis seem to believe that no taxpayers money beyond that paid by road users is needed to keep cars on the road – and a pig just landed in the park and is taxiing to the swings.

    Don’t despair, your article and even the critical comments will make an excellent CV to work for a wide range of government departments that have applied to art of economics to wasting taxpayers money prosecuting their religious beliefs.

  • 13
    michael r james
    Posted May 17, 2012 at 4:27 pm | Permalink

    Wombat Posted May 17, 2012 at 3:55 pm

    Hallejulah!

    I hope all visitors to this article read your comment. If I had to single out one part:

    “The premise and analysis of your (AD’s) argument is wrong but useful – it reveals the simplistic pseudo free market thinking that creates massive needless public expenditure – a weird form of communism masquerading as ‘free enterprise’.”

    Michael: “Hallelujah!” How apposite! Captures exactly the triumph of evangelistic fervour over rationality. AD

  • 14
    melburnite
    Posted May 17, 2012 at 4:56 pm | Permalink

    Perhaps you just wanted to generate a response, and you sure got it ! but the answer to the title is ‘of course public transport should be subsidised’ – if it wasnt, there wouldn’t be any ! or so expensive that the low paid wouldnt be able to afford it. And as to most users being CBD workers who are ‘unfairly’ subsidised, what about all the cafe workers, thousands of students, ordinary shoppers, hospital visitors etc. who also go to the city by PT? Even if you did double or triple the fares, people would still have to take PT because there simply isnt enough road capacity or carparks in the CBD or indeed the inner city where a lot of PT users are actually heading. We are lucky Melbourne doesnt look and operate like so many US cities where every second block is a ground level carpark.

    But I do agree that road users should be charged more, at least for the many freeways – toll ALL the freeways I say.

    melburnite: If we don’t find a way to pay for public transport infrastructure then there won’t be anywhere near enough! AD

  • 15
    Austin M
    Posted May 18, 2012 at 9:07 am | Permalink

    What I think Alan was trying to get at is that in a tightening budget situation convincing government to invest large amounts in capital expenditure for PT and then further more in ever increasing subsidy for PT is going to be a very hard sell. If we don’t tackle these problems then PT will continue even further into the “too hard basket”. Its real economic budgets that governments balance against social equity and id personally rather see more money available for hospitals, schools, etc. than to pay ever increasing subsidies on any of our transport systems.

    Freeways are the most efficient form of road we have. Is that why people who are strongly in favor of public transport oppose them so much? Toll roads have demonstrated there is a strong demand for high quality roads (which cover their own capital cost let alone the other economic benefits they present in safety, congestion, access etc.). I don’t see the same arguments being levied at rail lines which are effectively in the same boat (an expensive service requiring large amounts of land, with a dedicated uninterrupted flow)

  • 16
    lindsayb
    Posted May 18, 2012 at 9:31 am | Permalink

    @Austin
    “Freeways are the most efficient form of road we have.”
    LOL!! You have obviously never tried to use the monash during peak hours.
    Although if you are talking about extracting revenue from driver’s pockets, it is extremely efficient at that, recovering 20% of build cost per year for 30 years. Unfortunately, for those who need to use it (other options having been restricted by the deal), the hundreds of dollars per month that it costs regular users is no longer available for other economy stimulating activities, which might see more “turns per dollar” than having it disappear into some tax-friendly offshore corporate paradise.

  • 17
    IkaInk
    Posted May 18, 2012 at 2:00 pm | Permalink

    You’ve generated considerable debate here, partially I think because of a title that is silly because it conveys a poor message. You’ve asked ‘should public transport be subsidised’. The answer to that question is invariably, yes; the real question should be ‘how much should public transport be subsidised and how should subsidy costs be obtained’.

    There are only very limited conditions where public transport can run at a profit; cars need to be prohibitively expensive to own and operate and density must be very high to ensure highly populated catchment areas and high ridership. (This wikipedia page shows farebox-operating cost ratios which gives you an idea about the sorts of cities that manage it). Even under these conditions though infrastructure costs are subsidised by government.

    Apart from your suggestion for higher fares, your other suggestions are also subsidies; taxing businesses because they benefit directly from PT infrastructure is still a tax and therefore a subsidy, it’s simply a subsidy pointed more directly at those that benefit. Charging people to use roads and then putting that money towards public transport is a cross subsidy.

    Unfortunately, higher fares are likely to drive passenger numbers down, especially if you’re talking the sorts of charges that would be needed to stop subsidising PT.

    Next, the environmental argument does stack up; if we weren’t subsidising public transport we’d be subsidising roads (more than we already are). Our city’s development would be considerably different and our environmental outcome would be worse. Additionally captive vs. passenger by choice is not a black and white situation, many ‘poor students’ for example could and choose to be a bit more poor and own a car, or chose to live further than they’d like so they can afford a car, etc.

    Finally, it’s complete rubbish that users pay for all costs associated with our other essential services. Water, gas and electricity are all heavily subsidised and it’s absurd to claim otherwise. We’re spending bucket loads of tax dollars on desal; $150million on the HRL-Coal plant (yes there is both Federal and State funding to subsidise the cost of burning one of the dirtiest power sources on the planet, despite a carbon price!). That’s just two examples, look around and you’ll find billions more in subsidies.

    All this aside, I still agree with a lot of what you say. We shouldn’t be paying 70 cents on the dollar in direct taxes to keep PT running. We should look at methods to make that ratio a lot more healthy (say a farebox-operating cost ratio of 60%) and we should look at getting more of the other 40% from businesses that benefit from PT services or land development rights.

  • 18
    IkaInk
    Posted May 18, 2012 at 2:04 pm | Permalink

    I forgot to mention above that whilst some freeway projects have been built on mainly capital expenditure, there have been just as many stories where the government has been forced to step in and pay. Realistically PPP’s don’t transfer risk entirely to the private sector because if the project fails, the government will always step in and pour money at the problem until it goes away.

  • 19
    Alan Davies
    Posted May 18, 2012 at 2:42 pm | Permalink

    IkaInk at #17 & 18:

    Your suggested title is way too long! Controversy is good – that’s why we have a Comments section. Anyone who read the article could see what I meant. Those who saw something else would do so irrespective of the title.

    Cars DO need to be prohibitively expensive, either in cash or time or regulatory constraints. Otherwise travellers who can will drive.

    Land value capture imposes the cost of providing and running PT directly on the beneficiaries i.e. firms. They’re the ones who employ the workers.

    Higher fares won’t drive down patronage provided the cost of cars is increased commensurately, as I proposed. If more people walk, that’s even better.

    PT also encourages sprawl – look at 1930s growth. If travellers pay more for all forms of transport it will encourage a much more compact urban form than current growth is producing. And it will release public funds spent on the subsidy for other uses

    You’re nit-picking on water, electricity and gas. For example, water charges are increasing significantly in Melbourne directly as a result of the desal decision. You pay for the vast bulk of the cost of the water and electricity you use, but only a small part of the cost of providing the public transport you use.

    I was careful to say we should be seeking to lower the subsidy to PT, not make it completely self-funding (not that it would be wrong – just unrealistic politically)

    You’re nitpicking on roads too. The likes of the privately funded CityLink and EastLink haven’t failed and the investors are the ones taking a bath on the likes of the Brisbane and Sydney tunnels. I can easily believe there might be some government funding in there too, but if so it’s far from the main game.

  • 20
    Alan Davies
    Posted May 18, 2012 at 2:50 pm | Permalink

    There was a letter in Friday’s Crikey newsletter from Ian Lowe in response to this post. Since he chose to respond to the newsletter rather than on the blog, and since the newsletter is subscription only, I’ve reproduced the letter below, with my comments appended.

    Ian Lowe writes: Re. “The Urbanist: should public transport be subsidised?” (yesterday, item 13). Alan Davies correctly points out that public transport is subsidised and asks why this non-means-tested benefit is given to all who use public transport. That is a good question, but would it not be equally valid to ask why the public purse pays for roads and makes them freely available to all, a huge non-means-tested benefit to all who drive?

    The Productivity Commission has pointed out that most of the damage to roads is done by large freight vehicles, so taxpayers effectively subsidise freight operators by about $30,000 per truck per year, but nobody questions this hand-out. Every citizen pays about $180 a year to subsidise the transport fuel used by the mining industry, inflating the profits that largely go overseas, but the Treasurer declined to wind back this outrageous hand-out of public funds in the Budget. If we are going to have a debate about transport subsidies, they should all be on the table.

    More broadly, we should be asking why State governments continue to pour huge sums into road schemes that we know cannot meet the transport needs of our cities. The WA Budget this week blew about $130 million on urban road schemes and made no provision to build the public transport infrastructure the city urgently needs. Melbourne has no rail link to its airport and no plan to build one.

    If we were thinking about the viability of our cites in the age beyond peak oil, we would be rapidly investing in public transport. The obsession with roads will put huge burdens on future generations.

    These are mostly fair points. Asking why roads aren’t means-tested is indeed a valid and important question, but it wasn’t the one I was addressing – there’s only so much you can say in 1200 words. It’s a related issue but it’s separate and it’s a pretty familiar proposition. I’ll endeavour to look at it another time.

    Trucks and the mining industry aren’t comparable with public transport which is about moving people. However we both agree on the need to invest more in public transport – the difference is he seems to be implying there’ll be enough funds if governments stop investing in roads.

    That’s a common misunderstanding. Spending on public transport in Australia’s biggest cities now pretty much matches spending on roads. Moreover, according to Anthony Albanese, the Rudd/Gillard governments have committed more funding to public transport than all other governments since Federation.

    Even if governments stop spending on major new roads, I don’t think there’d be anywhere near enough to fund the sort of public transport system we should be aspiring to.

    He’s right Melbourne has no rail link to the airport, but wrong to suggest one is urgently needed. The airport has a very good bus system and doesn’t need a showpiece train at this time. There are far more important public transport priorities in Melbourne than replacing one form of public transport with another.

  • 21
    michael r james
    Posted May 18, 2012 at 3:10 pm | Permalink

    AD wrote: “Asking why roads aren’t means-tested is indeed a valid and important question, but it wasn’t the one I was addressing – there’s only so much you can say in 1200 words.”

    I’m sorry Alan but that is a straightforward cop-out. As I and I believe Lowe (haven’t yet read my CDM) as long as our governments continue to prioritize roads to the detriment of everything else, they will always claim there isn’t money for “expensive” PT. Melbourne are talking about doubling the Westgate bridge & route, or widening which is the most idiotic and expensive of covert road expenses (because scientific studies prove it never solves the problem they claim it will).

    In the past decade in Australia I have witnessed tens of billions of dollars spent on giant road and tunnel projects in all east coast cities, yet have they solved the congestion problem or made it worse? Your logic just feeds into the false justifications for more road building and, even worse, making PT unattractive (buses instead of fixed rail; higher fares on spurious and completely unrealistic econometric models; eg. what is your explanation for the drop in PT usage in Briz as the fares climb into silly world-beating rates?). And of course, worse yet again, is that all the handwringing over funding PT goes on year after year, decade after decade and becomes ever more expensive.

    Michael: I’ve explained my reasoning a number of times now so I’m not going there again. My explanation for the drop in PT usage in Briz is that the cost of driving hasn’t been increased by an amount commensurate with the rise in fares i.e. cars have gotten cheaper relative to PT. Newman is sticking by his election promise not to increase rego (though at least he’s not attempting to freeze the 3rd party premium). AD

  • 22
    Alan Davies
    Posted May 18, 2012 at 3:54 pm | Permalink

    There was a second letter in Friday’s Crikey newsletter from Niall Clugston responding to the above post. Since you otherwise need a subscription to read it, I’ve reproduced it below, FWIW. I’ve appended some comment.

    Niall Clugston writes: Alan Davies’s argument on public transport is constructed from a series of leaps of logic.

    The assertion that CBD workers are the main beneficiaries of public transport is generalised into considering them the only beneficiary. Some CBD workers being affluent becomes all CBD workers being affluent. Some CBD workers lacking viable alternatives becomes all of them lacking viable alternatives.

    From this he leaps to the incredible conclusion that if subsidies were cut, and ticket prices more than quadrupled, there would be no impact on patronage. In fact, even the well-off would consider driving and people of low income would be devastated.

    A logical approach to public transport would not be to eliminate subsidies, but to eliminate fares. After all, according to Davies’s figures, fares recoup as little as 22% of operating costs, and none of the capital costs, and from this must be subtracted all the costs relating to the ticketing system.

    In the interests of fairness, let’s eliminate road tolls and provide free parking at transport hubs on the outskirts of the CBD, such as Sydney’s Olympic Park. Problem solved.

    He’s ignored my key point that increases in fares should be accompanied by a commensurate increase in the cost of driving. He advocates eliminating fares altogether, but public transport advocacy groups recognise the folly of that approach and oppose it. It would make users worse off.

  • 23
    IkaInk
    Posted May 18, 2012 at 5:09 pm | Permalink

    Alan, after the desalination plant is built we will not be paying the vast-bulk of the plants costs through our water bills. The vast bulk of the project will be paid for by the $19-24billion in tax dollars that the state will be paying for the next 30 years. Call $20billion or so nitpicking if you like, but that’s just water and it’s just one project.

    IkaInk: You sure you got that right? I don’t see what you’re getting at here. The story you linked to says “The massive cost burden of the plant will fall on the city’s 1.7 million households as Melbourne Water is responsible for the payments to Aquasure.” It might be a bad project but it seems clear enough those footing the bill are water users. AD

  • 24
    michael r james
    Posted May 18, 2012 at 6:35 pm | Permalink

    I have trouble understanding the significant drop in use of PT in Brisbane unless there were a lot of discretionary trips being made previously. I am unconvinced by your argument about the cost of driving per se because Brisbanites complain bitterly that the price of inner-city parking has become stratospheric. Once one owns a car the cost of parking in CBDs is by far and away the highest cost.

    I suppose alternatives are that more people are car sharing, or their spouse is driving them and dropping them off in the CBD, or on the way to their separate workplaces?

  • 25
    michael r james
    Posted May 18, 2012 at 6:37 pm | Permalink

    Re the desal issue:

    (theage.com.au/victoria/states-first-desal-order-not-a-drop-thanks-20120401-1w6nb.html)
    State's first desal order: not a drop, thanks
    Royce Millar and Ben Schneiders
    April 2, 2012
    .
    The government's decision not to buy water for the first year has relieved Victorians of some heavy costs. The full 150 gigalitres would have cost Victorians $109 million for 2012-13, had the government opted to buy it.
    .
    However, the real financial burden is in the water ''security'' payments for the luxury of having the desalinated water available, whether water is ordered or not. Under the contract, Melbourne water users would have been required to pay $654 million in 2012-13 in such payments although that figure is expected to be reduced because the plant will not be operating for the full year.
    .
    The water security payments make up about $18 billion of the $24 billion nominal cost (based on 150 billion litres of water every year) of the project over its lifetime . Victorians will be paying for the plant for nearly three decades.

    Michael: The point of which is….? AD

  • 26
    michael r james
    Posted May 18, 2012 at 7:09 pm | Permalink

    AD wrote: “Spending on public transport in Australia’s biggest cities now pretty much matches spending on roads.”

    I seriously dispute that, certainly for Brisbane. As I pointed out recently Graeme Quirk boasts about spending $1 billion just on minor repairs to non-major roads in Brisbane (probably 4 year period). I suppose with Melbourne blowing $1.4 billion on Myki their costs will look a lot worse (and for little gain) but nothing compares to the tens of billions spent on freeways and tunnels. And there is no logic in saying those costs don’t count because they are PPPs–they are for-profit enterprises which means our society pays for them. (I am not sure how one does the calculation when they go bust as RiverCityMotorways did last year; you would have to know how much of the shares were held by non-Australians and how much of the debt was held by foreign banks. A lot of the losses will still accrue to our society.)

    In your reference to your earlier article:

    Australians travel almost eight times as many kilometres by car as they do by bus and rail-based public transport. The money is going where the demand is.

    A self-fulfilling recursive argument which would mean nothing would ever change, OR we would spend ever-increasing sums on the old existing (and failing) mode. Heck, yes that’s what we are doing.

    It’s not dissimilar to health cost arguments. Obesity, diabetes and heart disease are the big health costs and so every year we spend more and more on treatment. Instead of course we should be spending more on preventative measures. If we don’t, the health budget and associated disability costs and lost manhours, will bankrupt us. All the while we get sicker, even if interventionist medicine may prevent us dying (so actually making it even more expensive!). In fact if you look at the US their average age expectancy is actually decreasing for first time.

    So again, as a society we can look at the overall picture (re infrastructure) and decide to spend endlessly on things that cost an awful lot (roads, tunnels, desal) but do not solve the problem, or decide to spend less on those things and more on the one thing which the last century of history around the world is shown to work (efficient PT).

  • 27
    michael r james
    Posted May 18, 2012 at 7:21 pm | Permalink

    About the desal info, my point was just to give those clarifying data after IkaInk made his post. To show that those shocking figures are correct.

    I meant to add a comment (which I put in the subsequent 7.09 pm post) about how disastrous the desal decisions were and how much PT the same $$ would have bought in all east coast cities (though the Wonthaggi is the most expensive one in Australia and one of the biggest in the world–and it is going to sit idle most of the time, just as plenty of people predicted).

    Michael: The desal is indeed a shocker, but IkaInk’s point relates to who pays it. AD

  • 28
    michael r james
    Posted May 18, 2012 at 9:20 pm | Permalink

    “The desal is indeed a shocker, but IkaInk’s point relates to who pays it. AD”

    That is not as important as either of you seem to believe. The thing is that in one way or another we all are paying for it. And it is $20 billiion taken out of the productive economy that could have been used for so much better infrastructure.

    But as a point of detail, none of us can avoid paying the desal costs because it is repaid via the standing charge on water utility bills, ie. even if you barely use water you will still pay for it. And if we all manage greater water efficiency (so the consumed water cost component of the bill goes down) the standing charge will simply increase (or volumetric water charges will have to increase, or thresholds for higher charges will become lower etc. etc.

  • 29
    IkaInk
    Posted May 21, 2012 at 2:55 pm | Permalink

    Looks like I was wrong about how the money will be collected to pay for the desal. However, if its coming from standing charges, then its not usage based and therefore its still a form of subsidy. Everyone is Melbourne is paying for it, regardless of whether they’re one person in a flat or 6 people living in a house with a garden and a pool

  • 30
    Dudley Horscroft
    Posted May 23, 2012 at 12:20 am | Permalink

    Alan, the general sense of your thesis is that it is wrong to subsidize public transport as much as is currently done. You are correct, but to say that you also advocate raising the cost of driving hardly balances it, with 94 words supporting increasing the cost of driving out of 1233 in the entire article.

    Yes, you say “Traffic congestion needs to be tackled by the combination of road pricing and more and better public transport services, but that doesn’t require it to be subsidised. All that matters is the relative price to the traveller of driving versus public transport.” I managed to find another three sentences also stating that the cost of driving must increase. But you also stated ” my best guess is drivers probably pay in taxes and charges the equivalent of their full financial cost.” So effectively you are pleading that PT users do not pay their full financial cost, and should pay more, while drivers do pay their full financial cost, and should also pay more. On a financial basis this latter is wrong. On an economic basis they should certainly pay more. It is of course, very arguable that many of the taxes and charges the NRMA includes in the cost of driving are not related to driving, but to owning a car and taking a lethal weapon on the public road – and therefore should not be included in the “cost of driving”.

    You may also like to remember that local roads are provided out of rates, paid by all householders, and generally ignored as a cost of driving.

    But to take an example – one J Elliot, MHR, takes out full page ads boasting how she has obtained $350M or thereabouts for the Sexton Hill by-pass. This has been on the drawing board for the last 15 years or more. When “consultation” was in progress we were advised that the estimates for the upgrade were about $110M for a viaduct and cutting similar to what has been adopted, and about $130M for a lower viaduct and tunnel, and that therefore a tunnel was ruled out. No argument could shake them. I argued that simple traffic engineering fixes could remove the problems with the existing road at minimal cost ($10M?) – ignored. So about $356M has been spend on a $110M project. The difference in cost – about $230M – could have given Sydney the first section of light rail from the Quay to west of Sydney Uni. And given that the cost of operating light rail is 2/3 or less of the cost of a bus system doing the same job (USA figures) there would be a substantial reduction in the subsidy.

    The point is that cities are very efficient ways of organizing business. If they weren’t they wouldn’t exist. But this means that, until the mythical ‘paperless office’ is perfected, and everybody can operate on conference calls, there is a major need to transport people from where they live to where they work. And public transport is the best way to do it. Cities like Sydney and Melbourne could not exist if it were not for public transport – see the City of Sydney “Connecting our City – Summary Report” which notes that of weekday trips to Central Sydney 60% are carried by public transit, and 30% by car and taxi. For the journey to work, 72% are by public transit, and 20.1% by car, truck, taxi and motorbike/scooter. In each case, the largest proportion are brought by train. Now, consider that the trains mysteriously vanished and think on those public transit users now coming by car. As Buchanan found long, long ago, the entire city would have to be completely remodelled – a completely impractical and ludicrously expensive task.

    So, really, the answer to your question is “Yes, public transit should be subsidized” with the rider “until car users pay the full financial and economic costs of their use of roads.”

    Dudley: I agree completely with your last sentence (it’s the message my article is intended to convey). BTW I wrote about subsidies to cars – both financial and economic – just the other day. AD

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