Monday, October 23, 2006

Free public transport for the young

I am ambivalent about Mr Baillieu’s proposal to offer free public transport to young people and full time tertiary students in Victoria.

Fares on buses and trains in Victoria are well above marginal cost (and a long way above social marginal cost given un-priced congestion externalities) but I do not believe these marginal costs are zero so this measure will induce inefficient travel – this is the reason I have opposed zero priced public transport in the past.

But these transport costs are a heavy burden for young people on low incomes who benefit, in any event, from concession fares already. At an estimated cost of $70 million annually it is not an ideal policy but not the worst either. It would be costly to means test it so the sons and daughters of wealthy parents will benefit from the policy. But, as handouts go, I am less annoyed by this proposal than I normally would be. The Bracks Labor Government seems on a par with most of the debt phobic state governments in Australia, recently achieving a state budget surplus of $825 million.

The ‘free fares’ policy does nothing to improve service frequency or to rid the bus system of foolish regulations regarding route choice. Nor will it provide improved incentives for the private sector to enter these markets and provide better alternatives to travel than the use of a private car. Anonymous Lefty likes the policy but not the fact that it is made by the Liberal Party.


conrad said...

It seems like the policy of a desperate opposition with no ideas to me. buy, buy, buy.

Anonymous said...

It is inequitable and expensive. Are they going to give students in the country or outer suburbs a discount on their rego?

On a geographic level, why should kids wealthy enough to live and study in the inner city or middle Eastern suburbs (the areas with decent public transport) get a handout while the kids in the outer suburbs and country don't?

On a class level, why should kids heading to uni get a discount while kids doing apprenticeships or establishing themselves straight off in a lowly paid career do not?

We already over-subsidise public transport. A more useful policy would be a discount on car / motorbike rego for young people. A more efficient policy would just be sending each young Victorian a cheque for $250.

hc said...

Anonymous, Most of your points are sound.

In my post I said I was ambivalent about the move. Its not great policy but the costs are not great either and some benefits.

But I do disagree with you that heavy subsidies in public transport signify inefficiency if marginal costs are low and there are unpriceable external costs of congestion associated with private car use. I think this is the case.

I think there are some external benefits to education - not great but some.

Your point about sending them $250 straight is pure 2nd welfare theorem stuff. I agree but happier to give taxpayers dollars for their transport rather than beer.

Anonymous said...

It does seem particularly timid to simply give people free tickets on a system that fails to meet so many people's needs.

While this will be a great boon for students like me at Melbourne Uni I'm not sure it will be particularly useful for students at Latrobe or Monash. Free or not, most students drive because Public Transport in Melbourne does not meet their needs.

Also, graduate students are still left in the cold with no concession or free transport. If transport costs are so onerous then you would think this would apply to both the ugrad student and the post grad students.

Anonymous said...


Has anyone considered the perceived cost of public transport in comparison to driving? It seems to me that what is most important in terms of the economic decision to drive or take public transport is whether it is perceived to be cheaper than driving. By this, I don't mean to include the ongoing costs of car ownership such as registration, but the costs that pop up when doing a very quick comparison (mainly petrol and parking).

It seems that if people decide it costs the same (or less) to drive to the football than to take the train then the decision is already made. Following this logic we don't need free public transport, but simply transport that feels cheap enough.

So little consideration of the barriers!

hc said...

There's not a lot of elasticity in car travel demands but where there might be a bit is in income-constrained young people.

The mega-hectares of car parks at my university testify to the issue. And public bus fares are quite expensive and the buses travel around often 80% empty.

I think if bus travel were free there would be a lot of students who wouldn't buy a car - and the extra social cost would be very low.

Sam Ward said...

"I think if bus travel were free there would be a lot of students who wouldn't buy a car - and the extra social cost would be very low."

Free bus travel makes no difference at all to people who don't live near a route - that is, most people.

conrad said...


the obvious reason why people drive to La Trobe, is that it takes a month of Sundays to get their by public transport if you don't happen to live out that way. Try getting there from, say, any of the Eastern suburns.

You should be glad La Trobe has mega hectares of car-parks -- it is a smart decision by managment. It stops people wasting 10-15% of every day moving their cars in circles so they don't get traffic fines.