Public transport subsidy could be a game changer

28 May, 2019 - 12:05 0 Views
Public transport subsidy could be a game changer Mr Guvamatanga

eBusiness Weekly

Government earlier this week announced plans to subsidise public transport through ZUPCO, a move that will cost $8 million monthly according to Secretary for Finance and Economic Development George Guvamatanga.

In explaining the decision, Guvamatanga said the move is meant to cushion vulnerable members of the society from high travelling fares following a 50 percent fuel price increase that saw petrol and diesel going for $4,97 and $4,89 respectively.

“We also wanted to put money back in the pockets of people and this will be done through savings on transport costs,” said Guvamatanga.
This statement is backed by research.

In a research, which examined public transport (transit) subsidies in London, UK, and Santiago, Chile, Leonardo Basso and Hugo Silva found that subsidies can be effective in improving people’s welfare.

They argue that policymakers who wish to help the poorest should put into place transit subsidies, as this will do the most to help the poor and redistribute incomes, compared to the alternatives. Public transport is used by poorer people and, therefore, subsidising transit is a means to achieve income redistribution, the research showed.

Subsidies must be properly applied
There are many other reasons that are advanced to support transit subsidisation.
According to Silva and Basso’s research referred to above, by shifting people to a more efficient public transport system, subsidies can help address the negative externalities of car use — like traffic congestion and fatalities.

It also adds to more productive time for commuters, reduced pollution, and better public health and safety. In other words, public transit is essential to an environmentally sustainable urban future. But it requires public confidence in the transit system. To get people out of their personal cars, there needs to be an attractive alternative — ZUPCO in its current state is not. Without trust in the system’s reliability it will be an uphill battle.

Problems will always arise when subsidies are not properly applied. If subsidies do not improve the quality of service or fail to help those in need, they lose their impact. The key requirement of travellers who are wholly dependent on public transport is during peak periods, yet what is on offer at the moment leave them stranded at the very hour of need. In the past few days, the ZUPCO buses have been overwhelmed, with some passengers struggling to get transport hours after finishing work. It has been common these past few days to see people being carried on top of buses, normally reserved for luggage.

And that’s primarily because the state owned transport service provider ZUPCO was chronically mismanaged for years. The public transporter, some would argue, has also gone through years of under-investment and is in bad shape. It is thus a surprise that Government is relying on it to efficiently provide transport to the public.

Sustainability is key
According to Guvamatanga, Government’s subsidy will see ZUPCO reduce its fares by half from $1 to 50 cents for distance below 20 kilometres and from $1,50 to 75 cents from distances between 20 and 30 kilometres. The next 10 kilometres will cost $1 in bus fare from the previous $2.

Guvamatanga allayed fears that the Zupco subsidies are not sustainable saying the move was well calculated and will not burden the country’s purse.

“We know exactly how much this is going to cost us, we have done some mathematics, and we have factored in this subsidy,” he quipped.
“A subsidy if it’s quantified, budgeted and targeted, it’s a good subsidy. Safety nets by their nature are subsidies because you want to protect vulnerable members of society,” said Guvamatanga.

He makes a compelling argument, the poor indeed need to be cushioned from economic vagaries.
However, initiatives to subsidise public transport fares should be sensible, balanced and financially viable. Without the proper financing mechanisms, transport sector deficits will only grow.

There is need to strike a balance, between a subsidy and cost recovery. There is a greater reason to seek to recover a greater proportion of the cost of providing public transport from those who benefit from it. That would provide more revenue to build a better system, lower the disincentive to Government of ongoing subsidy, and be less of a fiscal burden.

Subsidies to public transport systems are large in the developed world: they reach around 70 percent of operational cost on average for the largest 20 cities in the US and similar figures are found in other developed nations.

This brings to question the 50 cents fare that is being charged by ZUPCO. Such a heavily subsidised public transport system defeats the whole purpose as the long term effects will come back to haunt the very same public we seek to protect.

The irony is those who most need public transport suffer a grossly inadequate level of service in large part because public transport is so heavily subsidised.

That subsidy is ostensibly intended to help them but arguably has the opposite effect. When unavailable, as we witnessed this week, other privately owned public transporters will then significantly increase fares to compensate for the lost business.

Money could have been put to better use
ZUPCO fares should have been left unchanged. There was no need to change it as it was already working. The reduced duty funds could have been set aside to purchase more buses in bulk as the case with the Belarus deal, but more importantly to develop an efficient intra-city rail network linking the major points within the large cities to complement the bus networks.

A comprehensive shift from roads toward railways and community trains in large urban areas can have a huge, transformational impact. Rail transport in my view also brings down energy use, reduces congestion and pollution, makes roads safer and gives the poor greater access to goods and services.

Just imagine the number of road trips that can be replaced by an efficient rail system, not to mention the reduction in emissions for both the environment and also people’s exposure to pollutants.

The scale of investment required to establish a high quality public transport system along the lines of what is proposed here is massive.
It’s not likely to happen for generations unless sources of revenue to build the infrastructure are found. And it’s going to be hard to get up while ever operating subsidies give governments a continuing disincentive to invest in public transport.

The way the reduction of duty and the reduction of the ZUPCO fares have been done highlight that we actually have the fiscal capacity to resolve the public transport system and fund even better infrastructure from current collections if the political will exists.

Instead of channelling funds to fuel subsidies, we should allow ZUPCO to operate commercially, or at break-even while we channel those funds into good quality infrastructure.

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