A popular suggestion by sustainable transport advocates is that more people would be persuaded to leave their cars at home and use public transport, if public transport were free. One can also make a case for free public transport on social grounds, by analogy with free health care and free public education.

It’s not the cost, it’s the service

The main difficulty with the idea of free public transport is its effectiveness, when compared with the cost. What primarily deters people from using public transport is not its cost (provided it’s competitive with car travel) but factors like flexibility, convenience and door-to-door travel times. If you live or work in one of the many Melbourne suburbs with no usable public transport at all, the fact that it’s free isn’t going to make it any more attractive.

I love public transport and have always been a vocal supporter. However, I work long shifts in an industrial park in Tullamarine, where the nearest bus line is not remotely within walking distance. If it wasn’t for the location of my workplace, I wouldn’t own a vehicle. Industrial parks are booming, yet they are nearly always inaccessible to public transport. How would free public transport be of benefit to employees like myself?

—Erin Lewis (Fitzroy North), The Age, 12 March 2006

I would love to get the bus to wherever I want to go, and I’m more than happy to pay for it – but it has to exist first! The bus services here are hopeless, every hour on a Saturday, not at all on evenings or Sunday. Oh, and only one route. Too bad if you want to go anywhere other than Southland. Free transport will only benefit those who have a good choice already.

— Gillian Scott (Aspendale Gardens), The Age, 12 March 2006

Economists acknowledge the existence of these non-financial barriers when they say that public transport has a low ‘price elasticity of demand’. What this means is that, all other things being equal, a 10 per cent drop in price causes less than a 10 per cent increase in patronage. Thus Adelaide, despite long having Australia’s cheapest public transport fares, also had Australia’s most steeply declining public transport patronage through the 1990s, and today has a low (albeit stable) modal share by capital-city standards.

(Adelaide was also in the early 1990s the first city to experiment with free public transport for students, as has occasionally been proposed for Victoria. This did not help arrest Adelaide’s steep decline in patronage, and is best seen as a policy that may or may not have benefits for education but probably doesn’t for transport.)

So, if the objective is to maximise public transport patronage, eliminating fares on its own is a rather ineffective strategy. As it is also the most costly strategy, it is probably not the first we should consider.

Revenue eases the argument for better service

Given the huge cost of the Myki system and our less-than-ideal rates of cost recovery, it’s tempting to imagine that most of our actual fare revenue gets absorbed in administering the fare collection system itself, so if we abolished both fares and Myki equipment we’d only be out of pocket a small amount. This is quite untrue: actual revenue—at $982 million a year in 2018-19—is substantial, even after deducting about $60 million as the annual cost of Myki, and even if we spent an estimated $80 million extra each year to re-employ tram conductors and station staff. The ratio of fare revenue to operating costs for public transport in Melbourne is around one-third (though often made to appear lower by throwing in phoney ‘costs’ like capital asset charges). This is modest by world standards, but could be improved without charging passengers more, mainly by improving the quality of off-peak services (and suburban buses in particular) to boost patronage and revenue at modest incremental cost.

Thus, in 2006 an Age article estimated that free public transport would cost about $340 million a year. Logically, this ought to have been weighed up against the alternative, which was to spend an additional $340 million a year on improved services. Such an increase in service would likely boost patronage more than free public transport would, and because more passengers means more fares collected, there would be increased revenue allowing services to be improved further still.

On the other hand, once you’ve made public transport free, the money for any additional services has to be found in government budgets. So does the money to employ staff, that are needed for passenger assistance and security even if they’re not selling tickets. This means that the more well-used the system is, the more it costs the taxpayer—quite the reverse of the world’s best public transport systems, which come close to covering their costs (often despite relatively low fares) because they attract high patronage and hence high fare revenue.

So, that $340 million of forgone revenue in 2006 has since risen to nearly $1 billion, due to patronage growth in the years since. Here is the fundamental problem. Had we made public transport free in 2006, we would by now be looking for a further $600 million or more each year, just to fund the additional services required to handle growing patronage. We should expect patronage to go on growing, if we want the system to succeed—and not rely on the whims of a State Treasury with all its competing priorities for public funds.

What does international experience say?

Given the enduring popularity of the idea of free public transport, it’s reasonable to expect that if it were truly a good idea it would have been tried already in at least one of the dozens of large cities around the world where public transport is popular, successful, and subject to a much greater degree of democratic control than in Melbourne. Certainly, it’s a characteristic of these cities that their fares tend to be cheaper than ours. And yet, international experience with free public transport in large cities is rare.

For many years the example most commonly cited was Hasselt in Belgium, a town of 70,000 people (roughly the size of Bendigo) where buses were free of charge from 1997 to 2014. As a measure to revive a declining city centre by encouraging people to visit more often it was an outstanding success. But a survey of bus passengers a year after implementation found 18% were former cyclists, 14% former pedestrians and just 23% former car users. As a matter of brute fact, the free service was more successful at reducing walking and cycling than it was at reducing car travel. The free service ceased in 2014, not because of a lack of political support but from sheer financial necessity, given bus operating costs had quadrupled over the period since 1997 in line with patronage growth. Meanwhile, over that entire period the 200,000 daily visitors to Hasselt from the wider region had continued either to drive or to pay to use trains and regional buses, which were never part of the free scheme.

A number of French regional towns have also introduced free public transport this century, starting with Châteauroux in 2001 and Aubagne in 2009, and more recently Dunkirk in 2018. These towns and regions closely resemble Hasselt, having populations between 50,000 and 200,000 (compared with Melbourne’s 5 million), with free travel limited to modestly-patronised town bus and tram services and funded through a municipal levy on local businesses grateful for the increased custom. (Geelong’s local businesses meanwhile spent much of the first two decades of this century petitioning their council to remove town bus stops from in front of their shops.)

A factor that makes these local initiatives less radical than one may imagine is that in most, a substantial fraction of existing passengers were already entitled to free travel: nearly half in Châteauroux, and over 20% in Dunkirk. Cost recovery typically ran at levels of 15% or less before fares were abolished, a level so low that in Dunkirk’s case, the forgone fare revenue accounted for less than one-third of a €65 million budget package for public transport improvements between 2017 and 2020. (Most of this package was spent on more frequent bus services, but when patronage increased it was the abolition of fares that received the credit, despite this accounting for a minority of the budget.)

The world’s then-largest experiment with free public transport commenced in January 2013 in Tallinn, Estonia: by no means small at 450,000 people, though still less than one-tenth the size of Melbourne. As is the case elsewhere, free travel does not extend to train services, and in Tallinn’s case is only available to local residents who obtain a smartcard. (So in this case there was no offsetting cost advantage from eliminating the ticketing system.) The estimated cost of €20 million a year equates to less than 5% of the revenue raised from Melbourne public transport users. Once again, a survey after implementation found the free travel was less successful at reducing car use than anticipated: public transport use increased by 14% but car use dropped only by 5%—while travel on foot plummeted by an estimated 40%.

A 2018 expansion of free travel to other Estonian counties has been misleadingly reported as ‘free travel nationwide’, but in fact only extends to county-run regional bus services—not to trains or to city buses outside Tallinn. Once again, these are only free of charge for residents of Estonia. Furthermore (and mirroring the earlier results for Tallinn), a 2021 investigation by Estonia’s National Audit Office found that while the free travel was successful in arresting a decline in public transport use, it had failed to make any substantial impression on the number of car trips. The auditors notably stressed the importance of making the service offering attractive not just to existing users but also to those currently doing their travel by car—though leaving a question mark over where the funding to improve the service might come from.

Lately a similar story is playing out in Luxembourg, which in March 2020 joined Estonia in its own free public transport experiment. Luxembourg is a city-state with a resident population of around 600,000, and a sizeable cross-border commuter population (who will still pay fares). Its public transport system, like Melbourne’s, has struggled to cater for patronage growth due to a history of under-investment. Commentators argue that the free travel initiative will make the system’s existing problems worse by starving it of revenue—although with cost recovery reportedly running as low as 3 per cent, this might be overstating the impact. Nonetheless, given Luxembourg also has the highest car ownership rate in the EU as of 2017, and other free travel initiatives have had limited success in reducing car use, there’s cause for concern that the system’s ongoing funding shortfalls will make an already heavily car-dependent nation even more so.

So if there is a common thread running through all these free public transport initiatives, it is the following:

• the systems they cover are relatively small (less than Adelaide’s 1 million people, for example);
• they cater for a minority of the population in regions that are more car-dependent than nearby cities or regions without free transport (such as Paris, Groningen, or the rural cantons of Switzerland);
• they have long tended to rely less on fares than on access to municipal transport levies on businesses that provide an alternative, though limited, revenue stream;
• partly as a consequence, they have generally suffered from low levels of investment, made worse in the wake of the Global Financial Crisis; and
• as a consequence of all the above, they had very low cost recovery from passengers, meaning the abolition of fares had only a small effect on the overall budget.

It should not escape notice that most or all of these factors are absent in the large metropolises and integrated regions that are celebrated for their superior public transport, such as Greater Vancouver, Greater London, or the Canton of Zurich. These transport systems are on the whole sustained by healthy fare revenues, even if fares are modest at the level of an individual traveller.

Conclusion: reduce fares, but focus on better service

So to return to Melbourne, and notwithstanding all that has been said, it’s certainly true that our fares for shorter trips are higher than they should be. For many years Melbourne had the highest fares in Australia relative to journey length, and recent fare increases for single-zone travel have outstripped both the rate of inflation and the change in the cost of owning and operating a car (which actually decreased at the time the GST was introduced in 2000). They are now at the level where many trips can be made more cheaply by car. For this reason, the increases to basic single zone fares from 2012 onward should be reversed, and at least part of the dividend from future patronage growth should be applied to reducing fares to competitive levels for shorter trips.

International experience points to a more effective strategy for shifting travel habits from cars to public transport than just axing fares. It involves such measures as high service frequencies, central coordination of timetables, traffic priority for trams and buses, and a conspicuous staff presence. Provided fares are set at a level competitive with car travel, these measures have been proved more effective in boosting public transport use than making public transport free – and at a much lower cost to the public purse.

Last modified: 18 October 2021