Money no enough: Understanding public transport fares

Mar 15, 2017 05.01PM |
 

by Lee Chin Wee 

BUCKLE in, because public transport fares are likely to rise. Transport Minister Khaw Boon Wan hinted as much during his Ministry’s Committee of Supply debates last week (Mar 8). Addressing Parliament, he said that the Public Transport Council (PTC) was reviewing the current fare formula, which is due to expire later this year.

In December last year, the PTC had revised fares downward due to lower energy prices. However, Mr Khaw noted that “the PTC cannot always bring good news, sometimes they have to adjust fares upwards. And when they do, I hope commuters will be understanding.”

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Many Singaporeans, especially those in lower income brackets, will soon be feeling the pinch. A month ago, Finance Minister Heng Swee Keat announced a 30 per cent hike in water prices – the first time water prices have risen in 17 years. It also comes on the heels of increased Service & Conservancy charges in 15 PAP-managed town councils, and higher parking charges at public car parks across the island.

Of course, every fee increase must be evaluated based on its own merits. It is not enough to say that the cost of living has gone up – in the case of public transport fares, any increase should be measured against real wage growth in Singapore and the trend pattern of public transport operating costs.

 

Is it expensive to keep trains and buses running?

To obtain a better understanding of public transport operating costs, we studied SMRT’s annual reports from FY2011 – 2016 as a case study.  Of particular interest were the rail/light rail and bus businesses. We isolated the annual figures for operating revenue and operating profit in these areas.

 

 

Operating profit for core public transport services is not high; in fact, it is a negligible portion of SMRT’s overall profit. In 2016, SMRT recorded an operating profit of $138.5 million. Out of this sum, only $13.3 million was from the rail/light rail and bus businesses – barely 9.6 per cent of total profits. The other 90.4 per cent can be attributed to SMRT’s other business interests, such as advertising and property rental. For instance, SMRT owns Kallang Wave Mall.

Not only is operating profit already low, it is decreasing due to operating costs rising at a marginally faster rate than operating revenue. Why might this be the case? Because in recent years, SMRT has been investing in renewal works for key infrastructure, and the acquisition of operating assets. For instance, from August 2013 to December 2016, 188,000 timber sleepers were replaced with more durable concrete sleepers. To prevent further power faults, SMRT is also replacing the third rail system which supplies electricity to trains. The cost of financing these projects is not directly passed on to the consumer, as fare prices are set by the PTC.

 

Can Singaporeans afford a fare hike?

When fares rise, consumers end up shouldering more of the operating costs. The key question is, can Singaporeans afford it? In comparison to other countries, our public transport fares are very affordable. A 2016 study by UniSIM showed that, for a 10km train ride, Singapore’s train fare was the sixth lowest out of 35 major world cities. It costs a commuter SGD$1.33 to travel 10km on train, whereas the global average (after Purchasing Power Parity adjustment) is around SGD$2.30.

Tracking real wage growth against changes in public transport fares, it also appears that public transport fares are reasonable. Since 2011, real wage growth has broadly kept pace or surpassed increases in fares. This, however, does not account for the period of 2012 – 2013, where fare changes were temporarily suspended as the PTC reviewed its pricing structure.

 

 

Should public transport fares be going up?

Someone’s got to pay for the cost of running our trains and buses. When SMRT was still a publicly listed company, there were three parties who could do this: (1) the consumer of public transport, who pays through fares; (2) the G, who pays through taxpayer monies; and (3) the retail investor, who buys SMRT stock. Since SMRT was acquired by Temasek Holdings, we are now left with options (1) and (2).

Clearly, consumers of public transport are also taxpayers. But not all taxpayers are consumers of public transport. Hence, when the G subsidises operating costs, people who are under-consuming public transport will be cross-subsidising those who use public transport frequently. Some view this as good, because those who under-consume public transport tend to be rich anyway, and their taxpayer dollars should be used to make sure others can have cheap MRT rides. Others view this as bad, because people should contribute based on how much of a service they consume.

Another point of view is that SMRT and other transport operators should use their profits from more profitable business sectors to cross-subsidise rail and bus services. The argument here is that instead of raising fares, transport operators should be willing to take losses on its core business (that is effectively a public service) in exchange for making large profits on advertising, overseas consulting, and retail business. However, there is a limitation to this model – transport operators only have secondary interests in these other business areas, and cannot sustain such an internal cross-subsidy if operating costs continue to mount.

Regardless of what one believes, everyone would agree that high operating costs for public transport are unavoidable if we want to ensure our trains and buses become more reliable and less fault-prone. And even if public transport fares were held steady, taxpayers would still feel the pinch – either directly in the form of higher taxes, or indirectly as money that would otherwise have gone to other G services is now used to subsidise public transport.

Come this April, though, when the PTC convenes to announce changes to fares, I’ll still be hoping that my daily MRT rides get cheaper. One can dream, right?

 

Featured image by Sean Chong.

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