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Friday, 15 April 2016

IPART needs more than time to improve its Opal fare report

The NSW Government has done us all a favour by giving the Independent Pricing and Regulatory Tribunal more time to complete its final report on Opal public transport fares.

Let’s face it, the draft report needs work.

To be fair to IPART, their objectives are generally sound. Among other things, the Tribunal says it wants to encourage greater use of public transport and increase cost recovery.

Sydney currently scores poorly against both these objectives.  The draft report estimates that just 21% of the costs of public transport in NSW will be recovered from fares in 2015-16. That means the contribution by taxpayers to public transport this year is nearly $4.4 billion. As very little of the Government’s expenditure on public transport is made outside Sydney, the level of cost recovery in the metropolitan area is not much higher – about 22%.

The report omits the other side of the equation, which is how much we use public transport. Bureau of Transport Statistics data show that only 12% of all journeys made in Sydney are by public transport and 69% are by car. By international standards, we are low users of public transport. Over the entire Canton of Zurich, Switzerland, including rural areas, 32% of journeys are made by public transport, nearly three times the rate in Sydney. And the high use of trains, trams and buses in Zurich comes at a lower cost to taxpayers, with 65% of public transport costs recovered from fares.

There are some who dismiss these comparisons by saying that sprawling Sydney cannot be compared with Europe where city population density is much higher. They may be surprised to learn that Sydney’s population density (not including the Illawarra, Hunter, Central Coast or the Blue Mountains) is not much different from the Canton of Zurich. So if low density is used as an excuse for poor public transport, then it’s a pretty feeble one.

If we accept that Sydney’s public transport does not perform well in either cost recovery from fares or patronage, then what can be done about it? Does the draft IPART report offer a solution?

Unfortunately, IPART’s approach was to do what mainstream economists do when unencumbered with expertise in public transport operations. They reached into their kitbag of economic theories and selected the one that seemed most relevant to the problem at hand. In this case it was the theory of socially optimal consumption. As applied to public transport, this means setting fares which are neither too high (or we will use private cars too much and cause congestion, high emissions and road accidents) nor too low (or we will underutilise road capacity and unnecessarily increase the burden on taxpayers).

Underpinning all of this is the notion that public transport is a scarce resource, which needs to be rationed efficiently using the price mechanism. Setting fares appropriately for each mode, says IPART, will lead to a more efficient use of public transport because users will make rational choices about which mode to select based on price.

Only econometricians would understand how IPART arrived at these “socially optimal” fare levels and even they would find the underpinning assumptions absent or dubious. It is obvious to users of public transport, whether they are economists or not, that IPART’s implicit assumption that we have choices about which mode to use is unrealistic. For the vast majority of Sydneysiders, we only have one mode available and it’s probably a bus. 

Most concerning is IPART’s belief that frequent users of public transport don’t pay enough in fares compared to infrequent users. Perhaps they think infrequent users are careful rationers. The Tribunal recommends increasing in the weekly cap to $75 in July 2018, a 25% jump on the current rate. By comparison, the average single journey will rise by just 8%.

More than this, the wastrels who travel frequently will need to deal with a complicated credit scheme in order to redeem fares paid in excess of the weekly cap.

If we are serious about increasing the mode share of public transport in Sydney, frequent users should not be punished. Instead of rationing public transport, the fare structure should encourage us to travel as much as possible by public transport. This is done in continental Europe by offering heavily discounted zone based periodical tickets (monthly, quarterly and annual travel passes) and having a simple fare structure which does not differentiate between modes. Even Melbourne, Brisbane and Perth manage to do this.

But fare structures alone do not increase patronage or efficiency.  High quality network design along the lines of the Swiss taktfahrplan model shows that multi-destinational public transport is achievable at low cost to the taxpayer, in combination with a sensible fare structure. And a small dose of demand management for car use also helps.

IPART’s objectives for NSW public transport may be well intended, but arcane economic modelling won’t get us there. 

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