Transport and social equity: Part 2 Fares

(This is a cross posting from The Daily Blog, originally published Tuesday 29 October.)

There is no question, public transport fares in New Zealand – generally speaking – are too high. Especially in Auckland.

Our fares are much higher than most comparable cities, which offer better services and have higher patronage.

Two factors may be responsible for our higher fares. Firstly, the decision to privatise the bus operations in 1989/90 had the perverse effect of creating profit-making oligopolies that drastically cut costs and eroded levels of service.  Costs per passenger initially dropped because of staff layoffs, driver “productivity” supposedly increased because they were forced to drive longer hours. Patronage also collapsed at this time. It has taken several decades to get it back to 1990 levels.

Privatisation was sold as a way to make things more competitive and efficient, but when introduced to just part of the overall transport network, it did the exact opposite. Even Treasury recognises the “reforms” did not resulted in a competitive environment. Average tenders for public transport service contracts in Auckland in 2004/05 was 1.3, and in Wellington about 1.1.  This is not a competitive market – it is one where a few players dominate and make healthy returns.

This should have been obvious to anyone who purports to understand economics. Transport infrastructure has certain natural monopolistic characteristics, and prices across the entire network are very indirect. Rather than operators competing against each other to deliver better service, they “compete” against the private car, which is heavily subsidised through a variety of local and central government policies. Why would a private bus company worry about increasing patronage, when they don’t have to compete to get a long term contract that allows them to continue providing mediocre service and get well paid for it?

It is possible to effectively introduce competition in the operation of public transport services to get better outcomes for users and taxpayers, but there needs to be public ownership of the essential infrastructure (like bus depots), and probably the vehicles as well. In Perth they have 5 or more tenders per contract, because the depots and vehicles are essentially publicly owned. (We would also need to ensure that operators weren’t able to compete by eroding wages or working conditions!)

The second reason fares are high and unlikely to drop anytime soon is because the New Zealand Transport Agency (under the stewardship of Steven Joyce) introduced a completely ideological and very harmful policy on Farebox Recovery, which creates a completely arbitrary and exceedingly high requirement for half the cost of the service to be recovered by fares. The policy’s costs outweighed the benefits, particularly in Auckland, but the government stuck with it – determined to see public transport users “pay more of their own way”, completely ignoring the reality that 1) private cars are heavily subsidised, 2) every additional person taking public transport reduces transport expenditure elsewhere; it reduces pressure on the roads, reduces the need for car parking, and reduces the portion of our current account deficit going on petrol and private vehicles.

Reducing fares can have huge benefits, but, I doubt it would be the best use of public money to make all public transport free. Last week I blogged about the importance of increasing access, not just blindly subsidising mobility. Making transport free to users would likely result in people taking more trips and travelling further than they otherwise would, which could be detrimental to local economies that could otherwise be supported by walking and cycling. It can encourage urban sprawl (though not quite as costly as car-dependent urban sprawl).

Making public transport free is unlikely to be much use to many low-income people who work shifts or in areas that are currently poorly served by public transport, and it may disproportionately benefit those who can afford to pay. The latest data from the Household Economic survey seems to suggest that the highest income people have increased their spending on public transport the most over the last few years. It could also result in overcrowding on peak services that are already stretched. Given the sunk investment in integrated ticketing and smart cards, the operational benefits of going fare free are reduced.

We definitely need to cut fares across the board, first by ditching the ridiculous Farebox Recovery policy and aiming for fares that grow patronage and give us the optimal social, environmental and economic benefits. This may include some fare-free zones. Secondly, we need to invest a lot more in infrastructure and services, especially in disadvantaged communities. We can target fare relief to beneficiaries, young people and students, and low-income households with something like the gold card, but it may be more effective to increase incomes at the bottom, rather than subsidising transport in particular. Increasing access is more about creating affordable and sustainable communities that are designed to serve local people, which may be a critical step in rebuilding social democracy and healthy civic engagement.

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8 Comments Posted

  1. In response to Robin’s issue about lack of public transport, I fully agree. In my view, as a person without a driver’s licence and car (for health reasons), transport disadvantage is as much of a human rights issue as lack of wheelchair access. I worked at one stage on a proposal to provide a basic public transport service to every person in NZ, and we believed that could be done very cheaply by tweaking existing transport services, providing a centralised booking system, and adding a few more to fill gaps. But the Government pulled the plug on the strategy process we were working within. In addition, I have argued for the supergold card free travel to be extended to inter-city services for people going from rural areas to their nearest service centre.

  2. @Robin H
    I tend to agree that during quieter times, they could use ‘minibuses’ to cut the emissions that a nearly empty 40-seater emits !


  3. It’s true that a 40 seater bus emits far more that a modest sized car, but in this age there are many graduations of capacity, ranging from “people movers” to the full size.
    Years ago the smaller ones were called “service cars”. Suit the size to the service.

  4. The economic value of public transport is the savings in cost of individual car journeys and the associated infrastructure.

    Unfortunately the right wing are determined to look at the costs and benefits of everything in isolation. Instead of total environmental, economic and social costs.

    Like many Green initiatives, if we look at the total cost of car use against public transport then the benefits of subsidised public transport, in saving costs elsewhere, become apparent.

    Remembering, though, an almost empty bus has many times the emissions of a car.

  5. High fares are definitely pushing people into cars in Wellington. The goals of a fare policy should be to make the perceived cost of the two modes comparable, and to make using public transport affordable for the transport disadvantaged. Lower fares will have less effect on revenue than is usually calculated, because they will encourage more use. The ideal way to cut fare costs is to offer daily/weekly/monthly/annual passes or policies that mean that extra trips over and above normal commuting travel become very cheap or free. That will generally not increase operating costs, because those extra trips are unlikely to be on peak services.

  6. Good Post Julie Anne..
    In Australia, they had 50% cut fares for ALL beneficiaries & cut price fares for ‘off peak’ passengers. I understand this has at least seen more use of public transport, if not higher profits.
    Surely even private companies would rather see the buses filled up at reduced cost, rather than maintaining full fares & having buses with only a few passengers onboard ?
    I ride the buses here in Dunedin, & many are only about 1/4 full… if not less !


  7. The thing about wealthier people selectively collecting subsidies deserves attention. We probably have more time for campaigning for the things that we want to be subsidised.

  8. All this is true, and especially the part about “areas that are poorly served by public transport”.
    This small town once had a daily bus service to Auckland. No more: there is simply nothing at all. If you don’t have your own car, or a friendly neighbour, you are stuck. Tough on young and old people! Even a feeder bus to the nearest larger town would help. The bean counters rule and the quality of life suffers.
    Public transport is mostly a natural monopoly and like others should be provided by a public body.

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