Proportion of household expenditure allocated to transport (source: ABS Household expenditure survey)
Proportion of household expenditure allocated to transport (source: ABS Household expenditure survey, 2009/10)

Brisbane’s Courier Mail reported yesterday a new “landmark” study by the Australian Automobile Association (AAA) purportedly showing the “staggering costs of owning and operating a car in Australia”:

Australian households are now spending up to $22,000 a year just to keep their cars on the road as toll ways, insurance, and other costs continue to rise — and congestion worsens. The first ever Transport Affordability Index…(shows)…a two-car household currently faces transport costs of $419 per week in Sydney, versus $376 in Brisbane and $348 in Melbourne.

The CEO of AAA, Michael Bradley, says Australians might be surprised to know how expensive transport is:

The Index initially shows around 13 per cent of an average household budget in most capital cities is spent on transport, which is remarkable when you consider that electricity, water, and telecommunications costs account for only one to three per cent of income combined.

The first thing to make clear is the AAA’s Transport affordability index isn’t based on a survey of thousands of Australian travellers. Rather, it assumes a single hypothetical household comprising a man and woman with dependent children. It’s specified they live in a detached house in a “middle to outer ring suburb” with good access to public transport.

It’s assumed both the parents work; one commutes to the CBD by public transport and the other drives. They have two cars; one is near-new, financed by a loan, and does 15,000 km per year. The other is ten years old, owned outright and driven 10,000 km per year.

Contrary to the way the Courier Mail frames the story, the AAA’s calculations for its model household also include the cost of public transport fares. While $22,000 sounds suitably scary, that figure applies to Sydney; the national average for the hypothetical household is around $17,000 per annum.

A traditional nuclear family is a convenient assumption for the AAA’s case because cars are very attractive for households with young children. But it isn’t representative of households in Australian cities; in metropolitan Melbourne, for example, families with dependent children only make up 35% of all households. The rest are mainly lone person households, couples without dependents, and single parent families.

While the AAA’s purpose is no doubt to stir the pot on road funding, the finding that “around 13 per cent of an average household budget in most capital cities is spent on transport” could be interpreted as showing a substantial improvement over the last decade.

The Household expenditure survey undertaken by the Australian Bureau of Statistics (ABS) found that 16.9% of expenditure by Australian households on goods and services went to transport in 1984, but this fell to 15.6% in 2003/04 and in 2009/10. The latter number is seven years old now but I doubt it’s increased; it might well have improved given interest rates have fallen, petrol prices have moderated and housing costs have increased in the intervening years. (1)

In any event, the high cost of owning and operating cars is old news. For example, back in May 2011 I noted that according to the RACV, it cost $10,668 p.a. on average to run a medium sized car like a Toyota Camry Altise and as much as $19,234 p.a. for a behemoth like a Toyota Landcruiser GXL (see Does driving cost less than transit?).

Last year the RACV calculated the cost of running a new Honda CRV medium-size SUV averages $10,380 p.a. and a Toyota Camry costs $9,561 p.a. A household with two cars is by definition spending a lot on transport.

Another interesting issue raised by the study is the AAA’s assumption that 13.3% of income is somehow too much to spend on transport; and that the cost of water, power and telecommunications combined is an appropriate comparator.

What’s the appropriate and reasonable amount to spend on transport? Is 15.6% of all household expenditure allocated to transport better or worse than the 16.5% spent on food and non-alcoholic beverages?; is it “staggeringly” high compared to the 13.1% spent on recreation? I don’t know the answer but there’s nothing to suggest that the AAA does either; its skimpy report doesn’t provide any basis to support its claim that 13.3% is too much.

It’s complicated because the ABS Household expenditure survey indicates transport is a luxury good; those in the lowest income quintile allocated 12.8% of their expenditure to transport whereas those in the highest quintile allocated 17.8%. That pattern also holds when calculated on the basis of both disposable income and net worth.

The percentage of expenditure allocated to food, power, clothes and furnishings falls as income rises but transport is in there with housing, recreation, medical care, and household services. A substantial portion of the latter is no doubt air travel but some of it is also more cars, flasher cars, and more kilometres of driving.

The most important thing the AAA overlooks is that on average travellers don’t pay their way. Motorists probably meet their financial costs via taxes and charges, but they don’t pay the full cost of negative externalities like congestion and pollution.

Public transport users generally pay a higher proportion of the cost of negative externalities but only pay a small proportion of the financial costs of their travel i.e. none of the capital costs and about a third of the operating costs.

Transport provides access to opportunities so it’s not surprising people are prepared to pay a lot for it and to consume more of it if they can afford it. But the most popular mode by far – driving – also creates a host of negative externalities. It’s no doubt contrary to the intention, but if anything the AAA study says nothing that changes my view that motorists can – and should – pay more for the use of roads.

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  1. The AAA provides very little technical detail; it’s unclear if it presents spending on transport as a proportion of income or as a proportion of all expenditure on goods and services (see quote from AAA CEO above). I suspect the distinction doesn’t matter much for its model household.