Myth: More money is spent on public transport than on roads

Myth: More money is spent on public transport than on roads
Fact: Government budget figures have been rendered virtually meaningless by the shift to a particularly misleading form of ‘accrual’ accounting. Figures for public transport in particular have been padded with fake costs to make them look artificially high. When one tallies up the real figures instead of the rubbery ones, it is the road system that absorbs the greater share of expenditure.

The 2004 Victorian Budget was a typical road-lobby bonanza, with $552.7 million in new funding for roads and virtually nothing to improve public transport services (apart from $3 million for bus lanes and the reannouncement of a $30 million tram priority programme). Responding to criticism of the budget, Transport Minister Peter Batchelor issued a press release saying that the 2003 Budget allocated $1.41 billion to public transport and only $725 million to roads in the 2003-04 financial year.

The intent was presumably to argue that more money was being spent on Victorian public transport than on Victorian roads. This was certainly the spirit in which Batchelor’s statement was seized on by commentator Neil Mitchell, who published an article in the Herald Sun on 11 May 2004 claiming that the government was pandering to lentil eaters in the sustainable transport lobby and persecuting motorists!

The Minister was not lying here: his statement was carefully worded to ensure that it was technically and literally correct. Under the ‘accrual’ accounting used by the Victorian Government, there is a great difference between money allocated in a budget statement and money actually spent. Many economic commentators, such as The Age‘s Kenneth Davidson, have noted that government budget figures are almost meaningless as they are riddled with accounting devices understood only by those with years of training in accountancy.

For example, the reported budget figures for metropolitan train and tram services are much, much larger than the actual subsidies paid to the operators. Under the contracts that applied in 2003, the total subsidy to all four train and tram operators was $256 million per year: the budget figures are three to four times larger!

Just some of the ways in which public transport is made to seem more costly than roads are:

  1. Including a hidden ‘Capital Asset Charge’ (CAC) in the cost of public transport. This is a notional interest payment charged on the book value of all public transport assets – essentially as though all public transport since the first railway to Port Melbourne in 1854 were built with borrowed money at 8 per cent interest, in perpetuity. CAC operates purely as an accounting device and does not reflect any real cost of operating the system, let alone represent any actual money changing hands. And while CAC is charged on schools, hospitals and other public infrastructure, it is not charged on roads. (The only other exemptions are national parks and artworks.) This discriminatory treatment of roads and public transport makes a mockery of the CAC’s alleged purpose of encouraging efficient use of assets.
  2. Neglecting to mention that most roads are local roads and are funded by local councils, not the State government. Apart from the road spending that gets reported in the State budget, there is also some $600 million a year spent on roads by local councils in Victoria.
  3. Including as public transport spending the cost of such social equity initiatives as the Multi-Purpose Taxi Programme, which no-one would begrudge public funding to even if no-one used public transport.
  4. Including in the public transport figures the cost of driver training, accreditation, ticket inspectors, transit police and security staff, but omitting from the road figures both the $250 million cost of policing Victorian roads, and the $100 million cost of licencing motorists and registering road vehicles.
  5. Including the cost of compensating operators for service disruptions caused by mismanaged major projects, such as the Spencer Street Station upgrade. (As these payments are regarded as commercial-in-confidence, we don’t even know their approximate magnitude.)
  6. Omitting some spending on roads that has been charged to other government departments, such as Major Projects or State Development.

Of course, none of this is to deny that at present, spending on each public transport passenger is much higher than necessary, and may even exceed the equivalent spending on each motorist (though our subsidies page suggests this is not the case). This is due partly to low patronage, resulting from unattractive services (as described on our running costs page), and partly to the inflated subsidies won off the government by the private operators. These subsidies, much of which go straight to the operators’ profit margins, are higher than they would need to be if the system were in public ownership and with competent, coordinated management.

The 2005 state budget shows taxpayers will spend $502 million subsidising the operations of the two foreign-owned metropolitan rail and tram franchisees, plus $190 million for country passenger services. The 1998 Annual Report of the Public Transport Corporation shows the comparable subsidy totalled $374 million, so the inflation-adjusted burden on the taxpayer is now 50 per cent higher than in the last year the system was fully integrated and in public ownership.

—Kenneth Davidson, The Age, 21 July 2005

Connex has made millions of dollars a year. Its profits, which were not required to be publicly disclosed and are about double what had been thought, are revealed for the first time. The details were in its 2008-11 business plan, obtained by the State Opposition. It showed Connex made a $25.65 million after-tax profit in 2007-08 and $22.46 million in 2008-09.

Connex slapped before it was axed, Herald Sun, 27 July 2009

The Government should certainly not be proud of the fact that it is wasting public money propping up the privatised, uncoordinated mess that Victorian public transport has become. It is telling that Vancouver’s budget for roads and public transport in 2005 was equivalent to just $180 per resident, compared to $430 per resident in Melbourne – and yet Vancouver’s public transport runs at higher frequencies than Melbourne’s and charges lower fares.

Nonetheless, since the release of the Meeting our Transport Challenges statement in May 2006, and even more the Victorian Transport Plan in December 2008, the government has sought approval for the vast sums it ‘invests’ in operator subsidies, as if fattening private operators’ bottom lines is a substitute for good planning. So the government in 2006 made much of having allocated another $6.5 billion to public transport over ten years (much of it inappropriately), without asserting any control over the $6.5 billion it was already (on prevailing trends) giving its train and tram ‘partners’ in subsidies over that time.

The proper measure of whether the government is succeeding or failing in its running of public transport is not how much money it’s spending, but what outcomes are achieved. Despite all the dollar signs, the big transport plans do little more than continue the status quo as far as passengers are concerned. With the exception of some long-overdue bus improvements and some very expensive rail projects aimed entirely at CBD commuters, there are no plans for more frequent services. The government now seeks to achieve its ‘20% by 2020’ mode share target by default, through patronage growth that took place for reasons beyond its control (such as high petrol prices) and caught planners completely by surprise.

What our public transport needs is not more money, but planning expertise. Properly planned and managed, the public transport system could provide a much higher level of service than it currently does, for very little additional cost. On the other hand, even a modest boost to road capacity requires large additional expenditure on roads, as we see in each successive State budget.

Last modified: 27 July 2009

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