To provide first-class public transport in Melbourne and country Victoria, and enhance Melbourne’s reputation as an eminently liveable city, will require significant improvements in the quality of the service, and also some extensions to the rail and tram networks. But where will the money come from?

A high quality public transport system need not be fantastically expensive. Toronto’s public transport system, serving a number of people equal to Melbourne’s entire population, costs a similar amount to run to Melbourne’s. The public subsidy is less than half ours, although fares are lower.

The economics of transport provision

Transport services, like any other services, have two components to their ongoing costs: a fixed component, and a component which varies with patronage. The relative size of these components is of great importance when assessing the economic viability of different types of transport service.

When an arterial road system is provided for private cars and trucks, most of the cost falls into the variable category due to the wear and tear of vehicles on the road. Thus the effective cost per individual road user does not diminish with increasing numbers; in fact, once factors such as road trauma and pollution are taken into account, this so-called marginal cost actually increases with each additional user, so that more and more needs to be spent to accommodate increasing traffic levels. In economics this is called the “law of diminishing returns”.

In largely rail-based public transport systems, on the other hand, a far greater proportion of the costs are fixed. It costs more or less the same amount to run trains or trams regardless of how many passengers are actually carried. Thus, with each additional user the effective cost per passenger decreases, and we have what economists call “returns to scale”. Since public transport revenue increases with more passengers, it is clearly economic to encourage more passengers onto public transport, while it is distinctly uneconomic to encourage more road users.

Why is our public transport so costly?

Public transport in Melbourne has poor cost recovery because patronage is largely confined to peak periods. This means high costs to provide staff and equipment most of which are not used for the rest of the day. In addition, the high proportion of concessionary passengers means that fare receipts stay low.

At present, our public transport operators make little or no attempt to grab market share from the car. Meanwhile money is poured into new road projects to wean people off public transport and into their cars. The only result can be higher costs, as the large fixed cost is distributed between fewer passengers.

Recovering the costs

As should be clear from above, the key to improving the economic performance of our public transport is to increase patronage. High quality public transport attracts more full-fare-paying and off-peak passengers, which leads to better cost recovery. This way a “virtuous spiral” can be set up to counteract the vicious spiral of falling patronage and higher costs.

With the specific service improvements set out in other PTUA publications, we believe that subsidies need not increase, and the subsidy per passenger can be reduced considerably.

Immediate funding sources

To create a truly world-class public transport system will require an initial injection of funds, to help “kick start” public transport’s economic recovery. Our suggested sources are curtailing the arterial road programme, and the costs recouped from reduced fare evasion (which can be achieved by re-staffing the system). The State of Victoria is spending lavishly on new freeways and has a large budget surplus in any event.

That being said, we do not anticipate that the outlay needs to be terribly large (as compared, say, with a typical freeway project). We do not need to spend billions on new rail lines, as Melbourne already has one of the most extensive rail networks of any city of its size. Some extensions are needed, but the costs of these extensions pale in comparison with that of road projects intended to serve the same population.

Even new rolling stock requirements are minimal, since Melbourne still has an extensive stock of mothballed trams, and has just bought a new fleet of trains. The PTUA believes that many older vehicles are still serviceable and should be refurbished and used to improve services rather than simply thrown away. Melbourne’s train fleet has 60% as many seats as that of the Paris Metro, but only carries 8% as many passengers.

Better public transport is a real money saver for the community, since it allows us to avoid literally billions of dollars of expenditure on new roads.

Updated: March 2007