Monday 18 September 2017

A Policy A Day: Public Transport Incentives

In the lead-up to the election, we are examining a policy a day. We're exploring a variety of policy areas, explaining the background and analysing some of the policy options, with a mixture of technocracy and values-based approaches. Inevitably, some opinion will make its way in and we make no apology for that - after all, we're voters too. A list of all the articles is available hereEnjoy!

Today's post is written by Bhen Goodsir

Public Transport is an enormously important aspect of city life. Public transport adds a lot to a city by reducing congestion and pollution, as well as providing social benefits. How public transport reduces congestion and pollution is reasonably obvious - public transport is much more space and fuel efficient than cars, and the more people who use public transport, the fewer cars there are on the road.

But the social benefits are also important. The Gold Card has been a hugely popular programme. In 2005, Winston Peters promised, and delivered, free off peak public transport for all New Zealanders over the age of 65. It’s the sort of thing that can easily be described as an “election bribe” – and it probably was – but the reality is that public transport provides independence to many people who aren’t able to drive or aren’t able to afford a car. Public transport improves social cohesion by ensuring almost everyone can get around the city.

In this election and the last, the Green Party has proposed to extend the free public transport offered in New Zealand through a youth equivalent of the Gold Card, called the Green Card.

The economics of public transport are a little different to the typical supply and demand economics that govern the purchase of a chocolate bar at the corner dairy. Public transport requires a huge amount of up-front investment – often funded in part by the government. While each passenger pays a fee, the marginal cost of each passenger is very low. By the time a person gets on a bus, the cost of the bus and the staff to run it have already been incurred. A bus with 5 people on it and one with 45 people on it cost roughly the same amount to run.

In New Zealand, much of our public transport system is either run or funded by the government in one way or another. In 2013, ticket fares only accounted for about 46% of the actual cost of running public transport. This means that the real cost of “free off-peak transport” isn’t necessarily as high as we might think. Most of the time it means buses that are already running could just be fuller.

This doesn’t mean we can overlook cost though. The Gold Card costs about $80 million a year. The Green Party argues that it’s pretty good value for money. Their ‘block of cheese’ metaphor highlights that $80m is the same cost as 1km of the National Party’s Roads of National Significance. The slight problem with this example is that the roading cost is much more of a one-off [Editor: arguable, maintenance is a significant cost too], whereas the cost of subsidised public transport must be paid every year.

“Off Peak” Travel
Both the Gold Card and the proposed Green Card come with a catch - the free public transport is only in off peak hours. That means that before 9am and between 3pm-6.30pm, you still have to pay for your ticket. There are a couple of good reasons for this policy.

In Auckland, nearly 70% of the roughly 255,000 daily public transport trips are taken during the ‘peak’ hours. This means that the network has to have enough capacity to carry nearly 50,000 people an hour at 8am – even though at 10am it will only be carrying about 7500 people an hour. The result is that during the peak hours, buses and trains are pushed to their capacity, while in the off-peak hours they run their route nearly empty or sit completely empty in the depot. This is not the most efficient use of our public transport infrastructure.

Programmes like the Gold Card and the Green Card encourage some passengers to travel in the off-peak times, and make the network more efficient by spreading demand more evenly across the day. By increasing the efficiency of the network, the government can provide more trips to people at a lower cost. Students and superannuants are particularly good demographics to target with these offers because they tend to be more price sensitive – since they have less income – and more flexible – since they don’t typically work a 9-to-5 workday.

**Best guess based on figures provided in Greens Public Transport Policy
***Hypothetical Example

However, the graph above shows that while the Green Card would go some way towards making the use of our public transport network more efficient, the impact might not be that large.

Free transport for under 19s
The second part of the policy from the Greens is for free public transport for under 19s (U19s) – and this time there’s no catch. Demographic information on the users of public transport in New Zealand is fairly hard to come by. Young people are much more likely to use public transport than older people, but with publicly available information, it’s hard to say exactly what proportion of public transport trips are taken by U19s.

We can get an idea, however, by looking at the graph below, which shows the % of daily revenue and patronage by the hour. The spike in patronage at about 3pm is all the students heading home from school and paying lower fares. So we know that school students represent a sizeable percentage of the public transport trips.

Unlike university students, U19s cannot be as flexible with their transport. Generally, they need to be at school by 9:00 am and they leave at 3:00 pm which means they are using public transport in peak hours. The Greens estimate that 15% more U19s will use public transport, and 30% more university students. Given there are many more U19s than university students – these effects are likely to cancel one another out. Taking the policy as a whole, there is unlikely to be much change in overall network efficiency.

The Green card is just one public transport policy among many. There is currently a lot of work underway to extend the capacity of the Auckland network by creating a city rail loop. There are also proposals, in various forms, to extend the rail network to the Airport. While offering off-peak transport might help keep the overall costs down, the real reason for the Greens policy is to improve affordability for students, families and people with disabilities.

Public transport is most important for two broad groups of people: those who can’t drive, and those who can’t afford to drive. In the first group, there are children, the elderly, and people with some disabilities, and in the second there are students, large or low-income families, and beneficiaries.

The Green Card policy does a good job of extending the current gold card programme to cover a much wider range of people. For people in both groups, affordable public transport means they can do the everyday things of life like going to work, getting to school, and visiting family. But convenient and affordable transport can improve people’s lives in a range of other ways.

It’s expensive to be poor. It doesn’t matter if Countdown has bread for $1 a loaf if you can’t afford to catch the bus there. If you have to rely on the corner dairy for your groceries then it becomes much harder to provide for your family. A return trip to the supermarket on the bus could easily cost someone $5 at current prices. Cars are not the answer either. Expensive cars require loans – and the high interest that comes with them – and cheap cars require repairs, which can lead to sudden costs and potentially more loans.

How could we do better?
Without a doubt, Paris has a world class public transport system. With the metro and a network of trains, buses, and trams, more than 5 billion trips are taken in Paris each year. That’s compared to 12 million in Auckland. After accounting for population size, 6 times more trips are taken in Paris per capita. New Zealand has a long way to go before we can achieve anything like that level of public transport usage.

However, Paris does have some interesting ideas we could start using now. Most people in Paris pay for public transport with a monthly or annual pass allowing unlimited public transport. For adults, this works out to about NZD$120 a month, and for students just under $50 a month. A similar pass in Auckland is twice as expensive, and at least one and a half times as expensive in Wellington.

Paris also offers ‘Solidarity’ passes to people who, for a variety of reasons, don’t or can’t work. In some cases, these discounts also extend to family members. A solidarity pass means that Paris is standing by the members of its community that are already marginalised by ensuring they can participate in public life.

Students are a key constituency for the Greens, so it’s no surprise that they have been targeted for free public transport. Similarly, tackling child poverty has been a key priority for the Greens, and free public transport for U19s means that every child can afford to get to school. But the policy also does nothing to support the parents of these children. Free public transport could open up opportunities for better employment, or cheaper housing, that would mean that low-income parents could provide better lives for their families.

The Green Card would make public transport much more affordable for students, people with disabilities, and families, and it would reduce congestion and pollution. It’s good politics, but that doesn’t mean it’s necessarily a good policy. There are many ways that the same outcomes can be achieved. In order to make the most impact, public transport subsidies and fare structures need to be better targeted to meet the needs of those who rely on it most. 

Bhen Goodsir recently completed his law degree at the university of Auckland and is currently studying at the University of Paris-Sorbonne. In his spare time, he listens to many podcasts and sends Snapchats of dogs he sees to his friends. He tweets at @bhenelliott.

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