Should public transport be free?

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.

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*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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