Free public transport

In the earlier post on congestion tax it was brought up why shouldn’t we just reduce congestion by making public transport free. While it has some appeal to me in that I would be able to travel free to work everyday, and it would no doubt reduce congestion. I don’t think this is a good idea for a few reasons, not least the cost on the residents of Wagga Wagga paying for the Sydney train service.

I’ve been looking around to find some figures on how much subsidy is typical for the various forms of public transport. This was a little difficult to find but eventually I found the Independent Pricing and Regulatory Tribunal Report for 2006 with regards City Rail.

The Tribunal’s 2006 determination means that in 2006/07, cost recovery is expected to be 26.0 per cent. Fare-box revenue is expected to fund 22 per cent of CityRail’s total costs, while other revenue to fund an additional 4 per cent of costs. Government expenditure is expected to fund the remaining 74 per cent (including concession and free travel funding) (Figure 3.4). This level of government expenditure is equal to around $707 per household in NSW.

So the households of Wagga Wagga pay $707 each to run the Sydney trains service. There is also a comparison of the cost recovery for the other forms of public transport. It is surprising to me that rail is more heavily subsidised than Ferries.

publictransportcomparison.JPG

The left hand graphs show the level of subsidy for regular tickets. For buses its around 25%, for ferries about 50% and rail 75% or so. I must say, this surprises me greatly. Certainly I had assumed that at least 50% of costs were recovered by train fares. Its difficult to image the trains being patronised at all with fares four times their current level.

The report suggests that trains are more heavily subsidised because they reduce congestion much more than buses, certainly a good reason. I’m not entirely sure what this means with regards free public transport, except for the fact that with trains at least, we are already much of the way there. It would be interesting to see what the staffing costs are for city rail and test the contention that it wouldn’t cost any more if we got rid of the whole ticketing operation.

No real conclusions here, but I though it would be interesting to throw in some data.

More discussion of these issues here.

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29 Responses to Free public transport

  1. JC says:

    There is a great piece in City Journal last year sometime ( I’ll dig it up if someone wants) about the state of the NYC subway system. For many years NYers felt it was their God given right to travel almost free.
    The end result is that the system is dangerously underrepsired, in debt and requires a huge bailout before too long that no one is prepared to confront. Look out below if the “Wall street tax” receipts dried up.

    Similarly look out below if our stamp dries ever dry up

  2. JC says:

    There is a great piece in City Journal last year sometime ( I’ll dig it up if someone wants) about the state of the NYC subway system. For many years NYers felt it was their God given right to travel almost free.
    The end result is that the system is dangerously underrepsired, in debt and requires a huge bailout before too long that no one is prepared to confront. Look out below if the “Wall street tax” receipts dried up.

  3. james says:

    Steve, do you think that the residents of Wagga Wagga benefit at all from public transport being free in Sydney ?

  4. Steve says:

    You mean when they are on holidays?

  5. james says:

    Also, I would think the demand for train travel would be very elastic as the price got close to 0. It also seems plausible that the cost of the ticketting infrastructure might be 25% of the whole operation – ie they would indeed lose less if they got rid of it. Assuming of course that the number of travellers stayed the same – which it of course wouldn’t if it was made free.

  6. james says:

    No, not just when they are on holidays. I had a suspicion that this was a sticking point for you …..

    Environmental benefits.
    Cost to the country of using cars.

    Surely Wagga benefits if the biggest part of the economy (ie sydney) is run more efficiently ?

    Also note that your wagga example is an argument against a centralised government doing any spending at all. eg why should I pay for your sick grandmother through a centralised health service etc etc ?. All very howardesque. I’m sure wagga have some public transport too – probably more expensive per capita.

  7. Sacha says:

    james, I don’t understand why properly thinking about costs and subsidies is howardesque – surely it would be more walshesque (as in former Senator Peter Walsh – eg see his book “confessions of a failed finance minister”).

  8. Steve says:

    I doubt the ticketing infrastructure cost is anywhere near 25% probably more like 5%. Compare this to keeping the fleet of trains running, tracks maintained etc, to a few hundred minimally paid people selling tickets + machines.

    Yes the argument is a user pays one, I’m not sure its a Howardesque one particularly. The guy is a big tax and spender, so long as you fit the profile of a middle class homeowning family.

    As I’ve said earlier. I think a mixed model is ideal. A partial subsidy, with people having to bear some of the cost of them travelling around.

    Its interesting that on one hand you say that you think demand is highly elastic when price goes to zero, but on the other you say that there wouldn’t be an issue with free riders.

  9. james says:

    I meant the tactic of dividing people.

    Wagga gets a lot public subsidy aswell and so unless you somehow total their benefits at the expense of sydney siders it’s pretty pointless to go on about 707 dollars.

  10. james says:

    Actually I referred to joy – riders I think.

    And I don’t think the waste resulting from them would be significant whereas there are lots of peak hour travellers who have to get to work somehow that would start using the service. Is this inconsistent ?

  11. Steve says:

    Yes its true the country receives lots of subsidies in other areas, and its also true that a large bulk of revenue for the state government is raised via stamp duty etc which is most heavily raised in the high property prices of Sydney.

  12. james says:

    Steve, I think in an earlier post you mentioned you thought 75% subsidy would ideal ? In view of the fact that the trains are currently subsidised to this level do you have an updated number ?

  13. Steve says:

    Actually I do think you would get a lot of people who would instead of walking down George St a couple of blocks would jump on a bus, and crowd out the old people who actually need to be able to catch a bus, a few blocks etc. It would be a lesser problem for trains because of less frequent stopping, and cost of actually getting onto a platform but you would see a similar effect – inefficient use crowding out efficient use because of zero cost.

  14. Rod Clarke says:

    I think the “wagga wagga arguement” is a furphy.

  15. james says:

    JC, I would like to see the article if you can find it.
    thanks.

  16. Sacha says:

    public transport doesn’t actually cost a great deal at the moment – what do you think the increase in patronage would be if it were free?

  17. james says:

    Steve – I agree this is another example of potential waste (in addition to all the bus-spotters riding around for fun) but am not convinced that it outweighs the other benefits of no ticketting.

  18. james says:

    Sacha, even though you and I might think it is cheap I don’t think that everyone sees it that way – in spite of the petrol prices. Forgetting about the rest of the population being rational agents, I think that the ‘gimic’ of free public transport would be significant. Subject to the service being expanded to cope I think it might halve the number of people driving ? Anyone else got an estimate ?

  19. Sacha says:

    James, the question isn’t whether cheaper public transport would result in more people using it, but whether more people using public transport would reduce congestion in the CBD. You need to argue on that basis. While it’s plausible, by no means can one confidently say that it would happen.

  20. […] Steve Edney discusses the level of subsidy for public transport in NSW. […]

  21. Michael G says:

    If it wasn’t accompanied by an increase in quality (and image) then a gimick is probably all it would be. You probably need to argue on a long term basis, James.

  22. The biggest reason why public transport isn’t that effective is simply because it’s use only appeals to those who live very, very close to the transport lines and the interaction between the transport modes which link up public transport to other transport or home are vitally important. The nexus between transport types was actually the key to understanding why Britian had such a good rail system despite having smaller “inefficient” coal trains. So subsidising one form of transport at the expense of others, paticualrly “hub” services may actually compound congestion. (This leads to an interesting review of the idea of path dependence and in the details, rejects the idea with respect to British rail and even things like QWERTY, VCR/Beta etc).

    There may be a benefit to those living in Wagga subsidising those in Sydney, except that there is no proper way to make economic calculations, so that allocating resources efficiently becomes difficult if not impossible.

    If anything will save Sydney, it will be toll roads. Tolls solve both the issues of congestion and the user pays principle. The M5 ain’t perfect but it’s better than a train from Campbelltown to Petersham…moreso, you are not subsidising the mass transit over the nexus or hub transport.

  23. GMB says:

    The thing about private industry in an industry that is functioning and without subsidies is that it sets up income streams and invests in capital that is always improving. And this capital is REPRODUCEABLE without theft.

    Not only that a private industry contributes to the tax base. Whereas public transport and allegedly private transport (ie road transport which is in no way a functioning private industry) is a drain from those industries that are free and functioning.

    A good competitive industry produces goods and or services with greater value for money every year.

    That means its imperative to make every industry we can a ‘functioning’ private industry or some sort of facsimile of same.

    Now it might be and I’m pretty sure it is the case that we are not in the position to just sell all the roads of in one hit and make them all purely freehold. But I’ve elsewhere discussed how we might have a caveated sell-off to get a functioning private road and rail industry and its important that we hurry up and get this done.

    A first step might be simply to set up seamless charging everywhere.

  24. […] Steve Edney of the new Oz blog Criticality looks at public transport subsidies. The left hand graphs show the level of subsidy for regular tickets. For buses its around 25%, for ferries about 50% and rail 75% or so. I must say, this surprises me greatly. Certainly I had assumed that at least 50% of costs were recovered by train fares. Its difficult to image the trains being patronised at all with fares four times their current level. […]

  25. Paul Johnson says:

    Realise also that this is purely relating to operating cost recovery. There is an opportunity cost for the space taken by stations and track. Nowhere in the costs is any return for the real estate.

  26. Sacha says:

    Slightly facetiously, the space above a number of train stations is being sold/leased eg at Bondi Junction.

  27. Adrian says:

    The cost may be $707 for a house hold that does not live in Sydney to pay for its public transport but you will actually find that a lot of smaller town in NSW are not financially sustainable. This means that people from larger towns and cities including Sydney pay for their services like hospitals and education etc.

    The amount of revenue received from people in Sydney is actually less then what is fed back into it. This is because denser populated areas can be serviced cheaper and therefore more money needs to be spent on other areas of NSW. Small towns of say 100 or so people cost the NSW government a lot of money because of this.

    It should not be forgotten however that Sydney Siders generally earn far more money then people in other parts of NSW so really it’s simply a redistribution of wealth to other areas.

    Sydney’s economy (moving people to work, getting them quickly, the housing market etc) relies heavily on its public transport and it’s cheaper to maintain then roads. You don’t have to buy a ticket to travel on a road except the few toll roads. Country NSW relies on Sydney more then they realize. If Sydney’s public transport went to crap so would the economy of the entire state!

    I am sick of going out to country NSW and having people complain about how its not fair that Sydney gets so much more infrastructure. Sydney is 60% of the state and gets 40% of the state funding. If you look at Brisbane it is 40% of its state and it receives something like 65% of its finding. You could be worse of if you lived in country QLD.

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    Free public transport | Criticality

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