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Would free public transport really be such a good idea?

There was lots of discussion around the nation last week about the idea of abolishing fares on public transport. At first glance it might sound like a great idea, but here’re ten issues to think about first

Historical change in the proportion of NSW RailCorp services recovered from passenger revenue (source: NSW Auditor General)

Making public transport “free” by abolishing fares is one of those perennially popular ideas, but very few cities around the world have actually done it. Various propositions are cited to support it; for example that it would be more equitable, or that public transport, like public education, should be free as a matter of principle.

The most common argument, though, is that it would make travel by public transport much more attractive and consequently lead to significantly lower car use. That in turn would reduce the negatives associated with cars, like traffic congestion, pollution and emissions.

Proponents argue the impact on the budget would be offset to a considerable degree by lower collection and enforcement costs. Some also contend that taxing those whose properties appreciate in value due to public transport infrastructure would provide a replacement revenue stream.

An official figure for farebox revenue is hard to come by; as explained here, my conservative estimate is that it was $650 million in Melbourne in 2011 (after netting out lower collection and enforcement costs).

That all sounds good, but here are ten issues to consider when assessing the wisdom of abolishing fares:

  • The absence of fares doesn’t mean public transport costs nothing. Revenue still has to be found to pay the cost of running the system. The debate about “free” public transport is really a question about who pays.
  • In the context of State budgets, $650 million p.a. is a very large sum of money to remove from the public transport system. It’s enough to operate around 30 SmartBus systems like Doncaster Area Rapid Transit (or, looking wider, to cover the recurrent costs of around 50-60 large high schools). As I’ve written previously, the rail system alone needs billions spent on things like improved signalling, track upgrades and duplications, more train sets, new rail lines, improved security, and much more.
  • Public transport patronage is more sensitive to the level of service than it is to the level of fares. Investing $650 million in improvements like greater reliability and more frequent services would increase patronage by more in the longer run than the boost from eliminating fares.
  • Public transport users already benefit from very high subsidies. In Victoria, they only pay around a third of operating costs in fares. In NSW rail passengers only pay 20%; according to the State Auditor General, the average state-wide subsidy in NSW in 2012 was $1.57 for each bus trip and $10.01 for each train trip.
  • Higher patronage generated by abolishing fares would increase operating costs and crowding without any offsetting increase in revenue. It’s inevitable there’d also be pressure to abolish fares in regional centres. The real cost to the state budget would be considerably higher than $650 million.
  • Most of the extra patronage would come from current users making more trips. In the absence of a dramatic rise in the cost of driving, the potential of public transport to win trips away from cars is limited because outside of a small number of locations like the city centre (where congestion and high parking costs work against the car) there are few trips where public transport is as fast or as convenient as driving. The majority of trips to the CBD in cities like Sydney and Melbourne are already made by public transport. Even a big increase in patronage wouldn’t change mode share significantly. For example, the number of commuters travelling to work by public transport in Sydney grew by 35% between 1996 and 2011 (after many years of decline), but public transport’s mode share for the journey to work only went from 22% to 23% over the period. (1)
  • The argument that fares could be replaced by taxing land owners is irrelevant. It’s just one of a number of ways that any initiative, of which free public transport is just one, could be financed. Indeed, value capture could be used to increase funding for public transport rather than as a replacement for foregone fare revenue.
  • Assisting disadvantaged travellers would be addressed more efficiently by targeting assistance directly at those in need. It is neither necessary nor desirable to make public transport free for those with the resources to pay.
  • The big winners would be those who work in the CBD and live close to public transport. They’re a minority – only around 15% of all jobs in the metropolitan area are within walking distance of Melbourne’s city loop.
  • Removing any link between distance and price would encourage households to live further out where car use for the majority of trips is higher. It would also encourage further long distance commuting from regional centres.

Public transport has a long history of struggling for funding in Australia. There are a number of reasons for that. One is that it only carries a relatively small proportion of all trips in Australia’s major cities (around one tenth averaged across the capitals). Another is because users don’t make a big contribution to meeting operating costs (see exhibit).

Achieving a step-change in the level of public transport patronage will depend in part on offering a much higher quality of service. But by itself that won’t be anywhere near enough; the key issue is that unless the “price” of driving relative to public transport is increased dramatically (e.g. by congestion charging), public transport will continue to languish as a niche mode.

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  1. That’s because car use for the journey to work grew 21% over 1996-2011. That was a lot slower than the increase in public transport use but it was from a much larger base.
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  • 1
    Glen
    Posted April 2, 2014 at 9:28 am | Permalink

    Indeed Alan. You left out that if PT was somehow able to charge enough to make a modest profit (perhaps with some land use subsidies), there would be an incentive to provide more of it — at a quality that attracts patronage rather than suits the operator. At the moment governments have a disincentive to provide more or better PT, because they know it will add to the recurrent budget.

    How to achieve that? The answer can only be to charge more appropriately for the private use of roads. You showed in a previous post that the capital subsidy to a single freeway in western Sydney amounts to $2000 per NSW car, most of which will never see it. The numbers are stunning.* Most people have no idea what the roads they use cost. The total value of our road network runs to trillions, yet use of it is very close to free.

    (* The Hume Highway alone is worth about fifty billion, counting the land it covers. Fuel excise and vehicle registration charges fund only a small portion of the total network capital and operating cost. I think you posted on that, too.)

  • 2
    JohnH
    Posted April 2, 2014 at 6:20 pm | Permalink

    When I worked in public transport all the surveys we carried out indicated that most people would not use the system to any greater extent than they currently did if it was free. As the article points out the number one issue was the quality of the service, frequency, timeliness, cleanliness and safety. As someone who, as a senior, qualifies for free transport outside peak periods, I use PT when I have no time pressures but if I do have time constraints I still drive despite the cost of parking and petrol far exceeding my free travel. The cost of travel is not an issue for me, though I recognise it could be for some people. Those that think they might use it more would probably get a shock if such a change was made as it is likely people without decent housing would start using the system as a mobile home for free heating and cooling. Almost a guarantee that the middle class would flock back to their cars. This is how it impacts on customers but the budgets for governments would be put under significant pressure at a time when they are trying to reduce costs. They would immediately have to find the revenue lost, even if it is only somewhere between 20-25% of the actual cost these are not insignificant amounts. If free transport achieved the objective of increasing use there would also be the additional cost of additional infrastructure (buses/trains and trams) and service costs.

  • 3
    The Pav
    Posted April 2, 2014 at 6:21 pm | Permalink

    Thank you for the thought provoking article about a subject I am passionate about

  • 4
    Scott Grant
    Posted April 3, 2014 at 6:39 pm | Permalink

    I agree with almost all of the points. As a frequent and regular user of Sydney trains, I have often thought that they are too cheap, and would be willing to pay more for a better service. But not full, so-called, cost recovery.

    When people state that revenue covers only 20% (NSW) of operating costs, I would be interested in a definition of operating costs. Does this include rail and signal maintenance and/or construction? If so, it is not a fair comparison to road users, as Glen indicates.

    I also wonder what would be the total economic cost if the rail network were shut down. I well remember one occasion when the Sydney rail network was shut for an afternoon and it brought the entire city almost to a standstill. Car journeys that ordinarily took about 30 minutes were taking several hours.

  • 5
    peterh_oz
    Posted May 22, 2014 at 10:32 pm | Permalink

    And a month later, the Vict Govt has capped public transport usage at $3.58 per 2 hours or $7.16 per day across all modes (combined) and across the whole metropolitan area. It has done this by extending Zone 1 to cover the whole metro area, whilst keeping Zone 2 for patronage which avoids the inner city & inner suburbs. Whilst free is bad for the reasons you specified, cheap is good.

    The other bad thing about free is that having a price means a value is placed on the service, and an expectation is generated. Free = worthless. A cost, even low, means you’re buying something and receiving a benefit/reward. This I believe is the same reason fundraisers (eg Legacy) sell cheap badges/pins rather than just collecting money.

    I’d be interested in an update on your thoughts re the new Zone 1 extensions that begin in January 2014, combined with free trams in the CBD.

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