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Transport - general

Feb 8, 2017

Should public transport be “returned to the people”?

There are calls to bring management of Melbourne's train and tram systems back under government control. Might be a good idea, but first let's see the evidence

Yarra Trams proclaims it manages the world’s largest tram network (250 km of double track)

Writing in The Guardian yesterday, columnist Van Badham contended that since “privatisation of Victoria’s train and tram system has not delivered savings to the public”, it ought to be “re-nationalised” (see Daniel Andrews, please return public transport to the people).

Ms Badham says “re-nationalisation” of the public transport system, which she says was “sold off” in 1999, would be “more efficient and effective” than continuing the current arrangements. To dramatise the point, she starts off by telling us how a trip she took from London to Newcastle this week on Britain’s privatised rail system cost her A$213 whereas a ticket for the “same distance” on the “government-owned V-Line intercity service from Melbourne to Albury” costs only A$75.

Her main arguments for doing away with the current “privatised” arrangements in Victoria are:

  • The subsidy has “soared” e.g. from the “$651m paid to former franchisee Connex in 2007 to $1.18bn last year”.
  • A 2007 report by a transport adviser to former Premier Jeff Kennett, Richard Allsop, says “privatisation… produced no substantial savings for taxpayers”.
  • Customer satisfaction is “shockingly low, and unsurprisingly, the commercial squeeze on services has resulted in avoidable mistakes, service reductions and compromised safety standards”.
  • The franchisees’ profits – “$350 million over the last eight years” – are substantial and go offshore instead of into improving public transport.
  • Private owners don’t care about the public interest.
  • It would be good politics for the state government because “privatisation” is unpopular.

So, what’s the right call here? Continue with the current system or bring it all back within government?

***

Before we can address that question, it’s necessary to clarify a number of very important points Ms Badham gets  wrong.

First, the use of emotive terms like “re-nationalisation” and “privatisation” is incorrect and wildly misleading. Melbourne’s rail and tram systems have not been privatised; the management of operations has been outsourced like myriad other public sector functions. Indeed, the reason it’s in the news is because the current eight year contracts expire this year and are up for renewal!

The Victorian government still owns and is responsible for the tracks and the rolling stock; it’s the one who’s funding and building Melbourne Metro, the Mernda extension, level crossing removals, tram super-stops, and acquisition of new trains and trams. The franchisees’ role is to manage operations, but even then the government plans and approves the introduction of new services and timetable changes. The franchisees’ role is in principle little different from thousands of other contracts governments let every year for outsourcing services.

Second, Ms Badham is breathtakingly selective in the choice of the words she takes from the report by Richard Allsop, Assessing the results of privatisation. She chooses not to mention that his finding was that the first contract “can be judged as a reasonable success”. While his claims are arguable, Mr Allsop attributes to the new arrangements a 37% increase in train patronage over 1999-2007; a 25% increase in tram patronage; an 11% increase in service kilometres; and a big drop in strikes and stoppages. And while he concedes there were no substantial savings to taxpayers, he also claims “there has been no real increase in costs either”.

Third, Ms Badham cites the claim by the Rail, Tram and Bus Union that the two franchisees have together made $350 million in profit over the last seven years. An annual average profit of $50 million for managing operations doesn’t sound excessive for a combined train and tram workforce of around 5,500 (the Commonwealth Bank made $9.7 Billion profit last year!). What matters is whether or not the state is better off by outsourcing and whether it represents value for money.

Fourth, comparing the ticket price of a single train route in one country with a single route in another country means nothing. To then compound it by attributing all the difference to one factor – privatisation – is ludicrous. And anyway, at least get the facts right, they’re not the “same distance”; London-Newcastle is circa 400 km whereas Melbourne-Albury is around 260 km.

***

Despite the way Ms Badham frames her polemic, what’s at issue here isn’t much like the well-known and controversial asset sales of the 1990s e.g. Commonwealth Bank, Qantas, electricity infrastructure. That’s not surprising because public transport has been heavily subsidised for a long time. This isn’t “privatisation” so we should be a bit wary about jumping to a negative view on ideological grounds.

Nevertheless there are risks with the current approach. In theory the franchisees are better managers than government but relinquishing direct control inevitably involves compromises e.g. like station-skipping (see What’s better: a train that’s late or one that doesn’t get there at all?). The important thing is to be confident the inevitable trade-offs are worth it.

There are some important things taxpayers and travellers need to know before coming to a view on whether or not to support retention of the current arrangements. A key one is the answer to these questions: had management of trains and trams remained in public hands over 1999-2017:

  • Would the level of subsidy have been significantly different? Higher or lower?
  • Would the level of service – number, reliability, punctuality, stoppages – have been significantly different? Higher or lower?

In other words, have taxpayers and travellers benefitted from outsourcing or has it made them worse off? Unfortunately, I’ve not seen anything that comes close to providing an independent, reliable and trust-worthy answer. Lobby groups and ideologues are too politicised to take seriously – critics and advocates alike attribute any and every deterioration or improvement to the 1999 changes.

We need to be confident though that the government does the required research and carefully examines the evidence before it makes a decision later this year. Part of that process should involve putting the case for the various options before the public. And of course the government should do what’s best for taxpayers and travellers, not what’s politically convenient.

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