The reality of Melbourne as a liveable city is increasingly being called into question by its heavy reliance on the private passenger car for mobility. Significant improvements in the quality of the public transport service are required, including extensions to the rail, tram and bus networks.
A high quality public transport system is not a net expense imposed on the community. It is a high return social and economic investment.
The economics of transport provision
Transport services, like any other service, have two cost components: 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, these additional or marginal costs actually increase 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, trams and buses 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 “increasing 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.
Pricing public transport
Pricing of public transport in Victoria has been very unsophisticated and not especially aligned with positive transport outcomes. Broadly, it has been a function of government assessments made from time to time to recover a certain proportion of the expenses incurred in providing the service.
Insufficient consideration has been given to establishing pricing structures that both encourage greater use of public transport and especially the substitution of public transport usage for car travel. The inefficiencies associated with the cross-subsidisation of long trips by short trips should also be addressed. The combination of under-investment in the service and poor pricing decisions has had the effect of elevating prices whilst diminishing service utility.
We have also seen pricing decisions, such as free tram travel in the Melbourne CBD, that have had the effect of diminishing fare box revenue without any commensurate social benefit. Fare evasion has also become a significant source of loss in fare box revenue.
Recovering the costs
Cost recovery in public transport in Melbourne has been poor in much of the post WW2 period as the official expectation during much of the period has been that the private passenger car would substantially supersede public transport as the major means of mobility. This has been accentuated by heavily subsidised investment in the road network. As a consequence public transport shrank to be largely confined to peak period travel to the Melbourne CBD. Whilst service costs had to be maintained throughout the day, patronage and therefore fare box revenue dried up outside peak periods.
The key to improving the economic performance of our public transport is to increase patronage in peak and non-peak periods. High quality public transport attracts more full-fare-paying and off-peak passengers, which improves cost recovery. This way a “virtuous spiral” can be established to counteract the decline in patronage and higher costs that came with the retractive mentality that set in amongst policy makers in the mid-20th century.
With the specific service improvements proposed by the PTUA, cost recovery should improve significantly and the implied per passenger subsidy would decline accordingly.
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 to assume its rightful role as a people mover. Our suggested sources include curtailing the arterial road programme, and the costs recouped from reduced fare evasion (which can be achieved by re-staffing the system).
That being said, given the anticipated positive returns the outlays will be more than manageable. We do not need to spend large sums in rail network building, as Melbourne already has a quite extensive rail network. Important extensions are needed, but the costs of these extensions pale in comparison with that of road projects intended to serve the same population.
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 which inevitably congest within short time frames.
Reviewed: September 2015