Should public transport be made free?

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By Leith van Onselen

The ABC has asked the question in the wake of Luxembourg’s decision to abolish all fares from next month:

“It’s possibly the first example of an entire region, in this case a city-state, making public transport universally free,” says public transport advocate Tony Morton…

In 2013, the Estonian capital Tallinn opted to abolish transport fares for all registered city inhabitants, but not for tourists and other non-residents.

The move was politically popular but the results were mixed, according to Oded Cats from the Delft University of Technology.

Dr Cats, who spent several years evaluating the initiative, says there was only a moderate lift in public transport patronage, with no corresponding decrease in car use or traffic congestion.

“People that already used public transport used it more frequently, as well as people shifting from walking and cycling to using public transport for short trips, which is, of course, not a desirable effect,” he says.

While the policy has been socially beneficial for the unemployed and people on low incomes, Dr Cats says the same level of assistance could have been provided through targeted concessions.

And he predicts Luxembourg’s transport authorities will have a hard time persuading people to give up their private vehicles…

Making public transport free would be a retrograde step, in addition to being inequitable.

Despite public transport already receiving massive subsidies:

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Public transport’s modal share remains pitifully low across Australia’s cities:

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There are numerous reasons why, including:

  • The overwhelming majority of jobs in Australia – over 85% – are located in the suburbs of Australia’s major cities, which necessarily makes public transport uneconomic and unviable for most people, due to the dispersed nature of employment.
  • A rising proportion of women in the workforce means that commutes to and from work are also often tied in with other objectives, such as dropping-off or picking up school kids or children in child care.
  • Technology means that a physical place is less essential for connectivity to markets, whereas communication is less dependent on physical proximity.

Accordingly, increasing public transport investment designed to ferry people into and out of the CBD is unlikely to make much difference to city-wide congestion. It can’t because only a minority of jobs (circa 10% and 15%) are in these locations.

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The benefits from making public transport free would also overwhelmingly to higher income earners, since they tend to live in areas well-connected to public transport as well as work in the CBD. Therefore, such a policy would increase inequality.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.