Myth: Making public transport free will encourage use

Myth: Making public transport free will encourage use
Fact: Although Melbourne’s fares are far too high, cost is not the main factor that puts most people off using public transport in Melbourne. Just eliminating fares without improving services won’t shift the habits of enough people to justify the cost. But if service improvements can attract more people to public transport, we might as well maintain reasonably cheap fares so as to recover some of the cost.

A popular suggestion by sustainable transport advocates is that more people would be persuaded to leave their cars at home and use public transport, if public transport were free. One can also make a case for free public transport on social grounds, by analogy with free health care and free public education.

The difficulty with this idea is its effectiveness, when compared with the cost. What primarily deters people from using public transport is not its cost (provided it’s competitive with car travel) but factors like flexibility, convenience and door-to-door travel times. If you live or work in one of the many Melbourne suburbs with no usable public transport at all, the fact that it’s free isn’t going to make it any more attractive.

I love public transport and have always been a vocal supporter. However, I work long shifts in an industrial park in Tullamarine, where the nearest bus line is not remotely within walking distance. If it wasn’t for the location of my workplace, I wouldn’t own a vehicle. Industrial parks are booming, yet they are nearly always inaccessible to public transport. How would free public transport be of benefit to employees like myself?

—Erin Lewis (Fitzroy North), The Age, 12 March 2006

I would love to get the bus to wherever I want to go, and I’m more than happy to pay for it – but it has to exist first! The bus services here are hopeless, every hour on a Saturday, not at all on evenings or Sunday. Oh, and only one route. Too bad if you want to go anywhere other than Southland. Free transport will only benefit those who have a good choice already.

— Gillian Scott (Aspendale Gardens), The Age, 12 March 2006

Economists acknowledge the existence of these non-financial barriers when they say that public transport has a low ‘price elasticity of demand’. What this means is that, all other things being equal, a 10 per cent drop in price causes less than a 10 per cent increase in patronage. Thus Adelaide, despite having Australia’s cheapest public transport fares, also had Australia’s most steeply declining public transport patronage through the 1990s, and today has a low (albeit stable) modal share by capital-city standards.

(Adelaide was also in the early 1990s the first city to experiment with free public transport for students, as was proposed by the Victorian Liberal Party in the 2006 state election. This did not help arrest Adelaide’s steep decline in patronage, and is best seen as a policy that may or may not have benefits for education but probably doesn’t for transport.)

So, if the objective is to maximise public transport patronage, eliminating fares on its own is a rather ineffective strategy. As it is also the most costly strategy, it is probably not the first we should consider.

While it’s tempting to think – given the huge cost of the Myki system and our low rates of cost recovery – that there’s little real revenue left over from the cost of administering fare collection itself, the net revenue is still substantial: several hundred million dollars each year, compared with about $60 million for Myki, and about $80 million to re-employ tram conductors and station staff. The ratio of fare revenue to operating costs for public transport in Melbourne is around one-third (though often made to appear lower by throwing in phoney ‘costs’ like capital asset charges). This is modest by world standards, but could be improved without charging passengers more, mainly by improving the quality of off-peak services (and suburban buses in particular) to boost patronage.

Thus, an Age article in March 2006 estimated that free public transport would cost about $340 million a year. Logically, this has to be weighed up against the alternative, which is to spend an additional $340 million a year on improved services. This would likely boost patronage more than free public transport would, and because more passengers means more fares collected, there would be increased revenue allowing services to be improved further still.

On the other hand, once you’ve made public transport free, the money for any additional services has to be found in government budgets. So does the money to employ staff, that are needed for passenger assistance and security even if they’re not selling tickets. This means that the more well-used the system is, the more it costs the taxpayer – quite the reverse of the world’s best public transport systems, which come close to covering their costs (often despite relatively low fares) because they attract high patronage and hence high fare revenue.

So, that $340 million of forgone revenue in 2006 has now risen to about $600 million, due to patronage growth in the years since (and not counting the effect of above-inflation fare rises since 2012). Here is the fundamental problem. Had we made public transport free in 2006, we would by now be looking for a further $200 million or more each year, just to fund the additional services required to handle growing patronage. We should expect patronage to go on growing, if we want the system to succeed – and not rely on the whims of a State Treasury with all its competing priorities for public funds.

Given the enduring popularity of the idea of free public transport, it’s reasonable to expect that if it were truly a good idea it would have been tried already in at least one of the dozens of large cities around the world where public transport is popular, successful, and subject to a much greater degree of democratic control than in Melbourne. Certainly, it’s a characteristic of these cities that their fares are much cheaper than ours. And yet, international experience with free public transport in large cities is rare.

One example commonly cited is Hasselt in Belgium, a town of 70,000 people (roughly the size of Bendigo) where buses have been free since 1997. As a measure to revive a declining city centre by encouraging people to visit more often it has been an outstanding success. But it has been less successful at encouraging a shift to sustainable transport. A survey of bus passengers a year after implementation found that 18% were former cyclists, 14% former pedestrians and 23% former car users. In other words, the free service was actually more successful at reducing walking and cycling than at reducing car travel. Hasselt’s buses now serve an average of 12,000 trips per day, and while bringing much-needed custom to the city centre, are not the majority mode of transport even for Hasselaars (let alone the 200,000 daily visitors from the wider region, who either drive or pay to use trains and regional buses).

Other places to introduce free public transport include Châteauroux and Aubagne in France, in 2001 and 2009 respectively. Like Hasselt, these are regional towns with populations between 50,000 and 100,000 (compared with Melbourne’s 4 million), with free travel limited to town bus and tram services and funded through a municipal levy on local businesses grateful for the increased custom. (Geelong’s local businesses, at the time, were petitioning their council to remove town bus stops from in front of their shops.) In Châteauroux the change was less radical than one may have imagined: nearly half of existing passengers were already entitled to free travel, and cost recovery ran at just 14%.

The world’s largest experiment with free public transport commenced in January 2013 in Tallinn, Estonia: a city of 400,000 people (one-tenth the size of Melbourne). As is the case elsewhere, free travel is limited to city buses and trams, and in Tallinn’s case is only available to city residents who obtain a smartcard. The estimated cost of €20 million a year equates to less than 5% of the revenue raised from Melbourne public transport users.

Notwithstanding all this, it’s certainly true that public transport fares in Melbourne are higher than they should be. For many years Melbourne has had the highest fares in Australia relative to journey length, and recent fare increases have outstripped both the rate of inflation and the change in the cost of owning and operating a car (which actually decreased at the time the GST was introduced in 2000). They are now at the level where many trips can be made more cheaply by car. For this reason, the fare increases from 2012 onward should be reversed, and at least part of the dividend from future patronage growth should be applied to reducing fares to competitive levels.

International experience points to a more effective strategy for shifting travel habits from cars to public transport than just axing fares. It involves such measures as high service frequencies, central coordination of timetables, traffic priority for trams and buses, and a conspicuous staff presence. Provided fares are set at a level competitive with car travel, these measures have been proved more effective in boosting public transport use than making public transport free – and at a much lower cost to the public purse.

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Last modified: 10 October 2013