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Ministerial Inquiry into Sustainable Transport in New South Wales - Final Report Overview and Recommendations

A Framework for the Future

Final Report December 2003


The Interim Report on sustainable transport in New South Wales was released at the end of August 2003. It outlined the range of challenges to providing a sustainable public transport system, and put forward possible options for delivering better and more sustainable transport outcomes in NSW. Nearly 900 submissions have been made in response to the Interim Report - nearly 200 from organisations and groups, the rest from individuals. These were in addition to the nearly 300 submissions received prior to the Interim Report.

This Final Report takes into account the views put in these responses, as well as further information provided by the operators of public passenger transport services.

However, the main observations from the Interim Report have not changed:

  • A large amount of taxpayer money goes to fund passenger transport services of one sort or another across NSW every year. This funding is equivalent to one-fifth of the NSW government annual health budget and about the same as the annual State police budget.
  • An even larger amount of money will be required to maintain and improve the current transport network - over $2 billion per annum. Still more would be required if this network was to be extended to any significant degree to service new areas.
  • The current arrangements are not delivering the most appropriate transport solutions to best meet the needs of the broad community. Taxpayers are not getting the best possible value from the large amounts of money being spent each year on public transport. This has been a problem for many years, facing governments from all sides of politics.

This Final Report refines the overall framework for change put forward in the Interim Report and presents some specific recommendations that will provide a better way of funding and delivering sustainable public transport in NSW.

There is no question that a vibrant, modern economy and society like NSW needs an effective public transport system with an appropriate level of taxpayer subsidy. However, the public transport system must meet the needs of users and society efficiently and effectively, with the best possible value for money for taxpayers, users and others who may contribute to such a system. By international standards, public transport users in Sydney enjoy relatively cheap fares that reflect high levels of taxpayer general subsidies. Some concession users, such as seniors and school students, enjoy even cheaper fares as a result of additional specific subsidies. The high levels of general and specific subsidies, as well as large discounts on a variety of periodical tickets and long distance fares, together with worsening levels of cost recovery has resulted in taxpayers carrying an increasing share of the burden in funding the State's transport system.

The low and falling levels of cost recovery are unsustainable. There is a strong case for transport users to contribute a greater share. In particular, transport users can reasonably be expected to contribute to the additional funding that is required for improvements to the current system - as long as they do benefit from this additional investment.

Any fare increases must be clearly linked to improvements in the quality of service. In the past, poor management has all too often led to public transport users and taxpayers being penalised, rather than those responsible for the failures of the system. Mechanisms that provide incentives for the public transport operators to deliver improvements and ensure commuters or taxpayers are not punished for management failures must be developed. This Report presents some specific recommendations that will help better focus public transport operators on delivering improvements in safety, quality and efficiency.

Disentangling CityRail's major rail lines, with investment in sectorisation ('rail clearways'), should also produce significant system benefits over the next few years, particularly improved service reliability. It is reasonable to expect passengers to pay a share of the extra funding required for this with modest, real fare increases. However, passengers and taxpayers have a right to expect that benefits will arise from this extra funding and that the rail system itself will deliver efficiency improvements to help improve safety and service quality as well as help meet the current large funding gap.

CityRail must deliver improved safety, service quality as well as efficiency gains to help fund the needs of the system.

CityRail must review its services to ensure that the system is configured and operated to best meet the needs of the whole network and the vast majority of the travelling public, with maximum possible system safety and operational reliability. It must also achieve significant cost reductions by increasing the efficiency of its operations.

This will require management and workplace practices and culture to be radically overhauled. There is no doubt that the majority of people working in CityRail take pride in their work; there are many instances of outstanding service. However, there is an overwhelming sense that CityRail does not promote a real commitment to quality, customer focus and a service culture. There is also considerable scope for efficiency gains. CityRail's management and unions have key roles to play in ensuring the necessary changes take place. Government must ensure that these changes are delivered. Without such a commitment, CityRail will not be able to deliver the levels of safety, reliability, security, and general service quality that customers will be prepared to pay for and taxpayers or others will be willing to invest in.

Passengers can pay a fairer share, particularly to help fund investments in system improvements such as sectorisation

It can be argued that taxpayer's current general subsidy for the overall public transport system is too high relative to the other things that government must fund - education, health, and family and community services, for example. This is ultimately a matter for government to decide. However, one way to address the possible imbalance in the government's subsidy of transport relative to other social infrastructure is by achieving better levels of cost recovery for the operating costs of CityRail and STA buses and ferries, and lowering subsidies to the privately operated buses. Improving cost recovery cannot be achieved overnight; nor will the more distant rail or bus services necessarily ever achieve the same level of cost recovery as the shorter, inner suburban journeys. Further, improving cost recovery is not just about increasing fares. It also requires lowering costs by increasing the efficiency of CityRail and STA operations.

Determining what fare levels are 'fair' and what target level for cost recovery is appropriate for rail, bus and ferry services is problematic: it will vary by journey length and by service type. What is clear is that the level of cost recovery needs to be increased and that, to the extent possible, fares need to be more clearly aligned to the distance travelled. What is also clear is that real increases in fares can only be justified if costs are efficient costs and services are safe and reliable. Such fare increases may also be justified if the additional revenue raised is used to help fund improved system reliability.

IPART should set fares for all transport services (public and private) over a longer term price path (say five years). In the first instance, real fare increases should be clearly tied to providing some user share of funding for investment in the delivery of improvements in service quality. CityRail's planned investment in 'rail clearways' (sectorisation) appears to be an appropriate area for some funding contribution by passengers by way of modest real fare increases. To the extent possible, some fare increases should also be directed to dealing with the worst distortions in current fare structures. However, IPART would need to carefully manage the overall level of real fare increases over time, to contribute towards funding investments in system improvements while rationalising existing fare structures.

Transport expenditure must deliver better value to government (and taxpayers) and better meet the community's transport needs

There is no doubt that some of the transport services provided by CityRail, the State Transit Authority (STA) and private bus operators do not meet the needs of the community nor represent good value for money. For example, some STA ferry services carry few passengers, are costly to operate, are far from environmentally friendly, and provide a service that can be far more efficiently met by alternative bus services. The total dollars are relatively small, but do go to the important question of how best to meet the community's transport needs with a given amount of taxpayer funds.

CountryLink rail services provided by the State Rail Authority of NSW (SRA) fall into a similar category, but the dollars involved are far greater. Some CountryLink intrastate train services are not justifiable on economic or commercial grounds. Their environmental and social value when compared with alternatives is also questionable. They are used by very few people, are expensive to operate, and will require major new investments in both below-rail infrastructure and rolling stock over the next few years.

The Interim Report argued that there may be better ways to provide services that meet the needs of a much wider group of people in rural and regional communities, especially those who have no access to public transport for their basic needs, including transport for health purposes. This is not simply cold-hearted, 'economic rationalism'. It is about getting transport services to those who really need them in the most effective way. For example, CountryLink coach services are a far more cost-effective means of providing rural and regional transport within the state.

Nearly two-thirds of the submissions in response to the Interim Report related to CountryLink. Clearly, there is strong feeling in rural communities about maintaining (and, in some cases, extending) rail services in rural and regional NSW. One of the main arguments put by users of these services is that coaches are less convenient and comfortable than trains.

There needs to be a closer look at the full range of costs and benefits - including social and environmental costs and benefits - of specific CountryLink rail services to ensure that such services effectively meet community transport needs and, thereby, provide the greatest benefits to rural NSW. This must be on a case-by-case basis and must involve participation by the local communities who will benefit from the provision of the most appropriate transport subsidies that best meet the needs of the whole community.

A surprisingly large amount of taxpayer money (more than $800 million each year) is used to fund concessions and what is referred to as 'community transport'. The largest items are seniors' concessions ($173 million) and the School Student Transport Scheme ($427 million). There is also a lesser amount of money directed to health, disabled and rural community transport.

The so-called 'pensioner excursion ticket' for use on government-operated public transport is a misnomer. It is in fact available to a much wider group of 'seniors', but only for government-operated services. The concession is not targeted to the least advantaged in our society - for example, those receiving some specific form of pension or those entitled to a health card. And it is not available to pensioners who use non-government services. There is little disagreement that senior citizens in general merit some form of transport concession. However, a half-price concession appears to be a more appropriate form of concession for most non-pensioner 'seniors', while the more generous pensioner excursion ticket should be directed to 'pensioners' and seniors who are also health cardholders. It should also be available for use on government-operated and privately operated transport services across the state.

In any event, the pensioner excursion ticket price has not been adjusted, other than for GST, since 1988. It has not even kept pace with inflation. The current payment of $1.10 for most journeys is patently too low and needs to be increased.

There is also a case for limiting access to the more generous pensioner excursion ticket to off-peak periods. Evidence from the transport operators shows an increasing proportion of peak-hour travellers using these tickets.

For STA buses in particular, this is significantly adding to peak crowding pressures and, indeed, will increasingly influence bus fleet investment requirements to meet peak-hour demands. Heavily discounted concession travel should be restricted to off-peak times.

There seems to be reasonably wide agreement that current pensioner excursion fare levels need to be increased, while their availability needs to be extended to private bus services. This should be done as soon as practicable. Although there is less agreement on limiting the full concession to health-card eligible seniors and pensioners, providing a half-price concession for other seniors' card holders, this is a necessary change. Given the ageing population, the costs of the current scheme will continue to grow - even with an increase in the level of concession fare payments - and will become unsustainable.

Finally, pensioner concession fares should be restricted to after the morning peak demand period. Without this restriction, the growing number of pensioner concession card holders will place increasing pressure on morning peak capacity. For those pensioner concession passengers who work for registered charities or similar organisations and are required to travel in the morning peak, government can reimburse the organisation the extra cost of a half-price fare.

The School Student Transport Scheme (SSTS) is far more generous and costly than any other similar state scheme in Australia and continues to grow rapidly. The costs of providing such generous universal school student travel in the way that it is currently funded are an unacceptably high burden on the state.

Payments should be made only for actual student trips - not for so-called 'phantom' travel. The new 'smart card' ticketing technology should be rolled out in the private bus sector as a priority, so that SSTS payments are made only for actual travel. The recommendations of the Interim Report by the Hon. Barry Unsworth are fully supported in this regard.

There is also the issue of whether the subsidy provided for school travel should be limited in some way, to better control the burgeoning size of the SSTS. Responses to the Interim Report expressed a variety of views. Some submissions argued that the SSTS should be limited to providing transport to the nearest government school. Others argued that eligibility for free school travel should be subject to a means test. These options go to the broader question of education and access policies, and are matters for government. However, a modest administration fee ($30) to partly offset the growing costs of the scheme - with exemptions for low income households - should be introduced with effect from the next school year.

There are several options for better targeting taxpayer funding of transport services for the benefit of communities across the state. There are areas of need not being adequately met, including transport for the disabled and rural and regional health and community transport. The funds released from more appropriate and more efficiently delivered CountryLink services, as well as more targeted and better managed transport programs for pensioners, seniors and school students, will be more than adequate to deliver more and better transport services in these other areas of need.

Better planning is essential

One of the major issues related to sustainable funding of public passenger transport is the relationship between public transport and private transport. Private transport is by far the dominant form of transport across both the metropolitan region and the state. Large amounts of taxpayer funding go to road infrastructure, as well as privately funded and operated toll roads.

Motorists already pay substantial amounts for using motor vehicles, including registration charges and fuel excise. But they only pay for their specific road use on a few tolled roads and crossings (such as the Harbour Bridge and Harbour Tunnel). This is at the heart of the dilemma: there is a relatively large general payment for private motor vehicle use but there is very little specific pricing of road use. As a result, private transport users do not get the same price signals from road pricing that public transport users get from fares for a parallel journey. And in the absence of transparent relative price signals, public transport will always be at some disadvantage to private car use, especially given people's general preference for motor vehicle travel.

Specific and targeted road use pricing (as distinct from charging for general motor vehicle ownership and use to raise revenue) is increasingly being used in other states and overseas to both better manage congestion on roads, and better signal the relative price of public versus private transport. But we are some way off being able to introduce a more targeted system of road use pricing in the Greater Sydney Area - not least because effective road use pricing designed to encourage greater use of public transport and ease road congestion (and better manage investments in new roads) must be accompanied by good quality, reliable public transport alternatives.

We need to look ahead and have the debate now about how targeted, specific road use pricing might fit into a future integrated approach to sustainable transport, especially in the Sydney metropolitan region. Such an approach needs to focus not only on better managing road congestion (and new investments in road infrastructure) but also on how road use pricing might send better relative price signals between public and private transport and generate funds for investment in public transport infrastructure.

At the same time, it is clear that there must be a much better framework for planning investment in future transport needs. The past lack of integration between road infrastructure planning and public transport planning and the failure to apply robust investment rules to both road and other transport infrastructure represent a significant and costly shortcoming. The Department of Infrastructure, Planning and Natural Resources (DIPNR) must ensure better coordinated planning for road and public transport infrastructure. DIPNR and NSW Treasury must also impose a disciplined and transparent decision framework on these investments.

To conclude

We cannot continue with the current arrangements for providing and funding transport services - whether road, rail, bus or ferry and whether publicly or privately operated.

We have:

  • a metropolitan rail system that is so 'tangled' that it is unable to cope with necessary system changes, let alone essential service expansion
  • a government-operated bus system that is providing some services that are not obviously needed, yet a privately operated bus system that is not adequately servicing large parts of the state, especially in rural New South Wales
  • a costly public ferry service
  • highly subsidised and high-cost country passenger rail services that are not being effectively deployed to the overall benefit of rural and regional communities in meeting their health and community transport needs
  • expensive and poorly targeted school student transport and 'pensioner' excursion ticket schemes, with inequities in the availability of fare concessions
  • a congested road network that provides no real price signals
  • a relatively poorly funded community transport scheme (for health, remote and disabled transport) that does not provide adequate basic transport to those most in need.

We need:

  • a twenty-first century solution to create a sustainable transport system for the benefit of the broad community, the cost of which will run into billions of dollars
  • better deployment of funds and greater efficiency to improve value from the nearly $2 billion that taxpayers currently spend each year on passenger transport
  • improved cost recovery at the same time as extra funding for system improvements - from taxpayers; from users via modest real fare increases; from the system via efficiency improvements; and from savings from refocusing existing subsidies for school students and seniors.

We will then have:

  • a sustainable transport system that delivers a more functional, safe and reliable metropolitan rail system, with improved services and less overcrowding
  • rural and regional communities receiving more and better transport services, including a major expansion of health and community transport
  • far greater equity in the application of concession schemes across transport modes, with pensioners accessing the same concessions on private buses as on the government-operated system
  • in time, a road system that has proper road use prices rather than general motor vehicle costs, sending the correct signals to users of all transport services.

* * * * * *

I believe that there is a better way to providing and paying for the State's transport needs, and I would like to thank the nearly 1200 individuals and organisations who have shared their views about the way forward with submissions to this Inquiry. I would like to thank the team that has assisted with the Inquiry, Liz Livingstone, Ross Chapman and the Centre for International Economics, Mark Duffy and Michael Petrie. Finally, I would like to thank the Hon. Michael Costa for the opportunity to undertake this important task.

Thomas G Parry
December 2003

Summary of Recommendations

Delivering better services

As part of an improved incentive structure to achieve service improvements in public transport, public transport operators should be required to demonstrate their performance against a set of carefully chosen Key Performance Indicators. This requirement should be reflected in a transparent five year contract between the operators' CEO and Board and the Ministry of Transport. Failure to perform satisfactorily against the KPIs should trigger a government review at the conclusion of the contract of alternatives such as:

  • the introduction of private sector contestability for operating public transport networks.
  • examining investment in alternative transport strategies - such as increasing the use of efficient road networks - until public transport operators can deliver the needed services efficiently and effectively. The plan to establish five rail clearways within the CityRail network is supported subject to a rigorous cost-benefit analysis.

Funding options

Require public transport operators to pursue efficiency gains and to demonstrate their success as part of the five year performance assessment (recommended above).

Use fare increases to fund improvements in services of direct benefit to particular modal passenger groups, and adopt a CPI plus 'x' approach to fare regulation to make the relationship between fare increases and service improvements transparent (for example, rail clearways).

Use well-targeted beneficiary pays funding sources to partly fund network augmentations where beneficiaries can be identified. The appropriateness of applying property-based value capture charges should be examined prior to the release of land for development. Development charges should be considered, particularly for funding feeder services from new areas to the existing network.

Evaluate the use of public private partnerships (PPPs) to build and operate public transport infrastructure, and franchising opportunities on a case-by-case basis.

Pursue commercial development opportunities at and around public transport hubs to help finance infrastructure upgrades. Consider implementing a modest transport improvement rate with funds hypothecated to existing network upgrades and/or extensions. Undertake a comprehensive study to evaluate the appropriate basis for such a rate in terms of urban planning objectives and considering existing charges and levies.

Only consider public debt as a funding source when other more desirable funding options have been fully explored, and only for efficient and effective projects that would generate additional community benefits.

Refocusing CountryLink

Review SRA's allocation of costs to CountryLink to assess whether it is accurate and appropriate, so that the costs and benefits of CountryLink services can be properly evaluated.

Pursue opportunities for improving efficiency to deliver cost savings particularly in relation to costs associated with booking and selling tickets.

Ensure that the level of subsidies to CountryLink services can be justified on the basis of compensating for external benefits.

Negotiate an appropriate contribution from the ACT Government to the costs of providing CountryLink services between Sydney and Canberra.

Explore all options for improving long distance passenger services that provide access to rural and regional NSW within the constraints of available resources. Consider the costs and benefits of alternative transport modes and include a case-by-case assessment of the service levels, including service frequency, that communities need.

Include CountryLink services in the development of Integrated Regional Transport Plans recommended in the Interim Report of the Unsworth review.

Apply the 'Solutions Team' approach to other areas of CountryLink's operations. Any changes that are implemented as a result of the Solution Team's work should be reviewed after 12 months operation. Review CountryLink's fare structures and the appropriateness of the extent of discounts on tickets purchased in advance.

Fair fares and efficient subsidies

CityRail fares should increase modestly in real terms to help fund better services and to adjust the base fare for journeys up to 50 to 60 kilometres towards a constant per kilometre price. Some increases in fares for longer distances may also be justified, but need to be carefully balanced against the potential adverse impacts of substantially reducing the existing very large discounts. IPART should set CityRail fares having regard to these recommendations.

Pending decisions on the arrangements for bus franchises and smart card ticketing, continue to provide the following STA ticket products:

  • a standard single journey cash ticket whose price increases with distance
  • a magnetic stripe TravelTen ticket with a constant percentage discount to the single journey cash fare.

If STA and private bus fares are standardised, use a simple fare structure with a constant per kilometre fare.

Concessions and community transport

Provide payments to transport operators for actual school student travel.

Pilot the use of 'smart card' technology in private buses in 2004 and rollout the technology across the private bus fleet in 2005 to enable actual travel based payments.

Introduce an annual application fee for school student travel passes of $30 per student, indexed at the rate of inflation with exemptions available for low income households.

Make pensioner excursion tickets available to pensioners and seniors with health cards using the CityRail, STA and metropolitan private bus networks.

Replace the existing metropolitan pensioner excursion ticket fares scales with $2.50, $4.00 and $5.00 fares.

Increase the CountryLink pensioner excursion fare from $2.20 to $3.00.

Index pensioner excursion tickets and increase the fares in 20 or 50 cent increments.

Make seniors card holders eligible for half-fare concessions rather than pensioner excursion tickets (seniors who hold health cards should still be eligible for pensioner excursion tickets).

Limit travel on pensioner excursion tickets to outside the morning peak period.

Provide for the reimbursement of additional travel costs of pensioners who need to travel during the peak morning period to undertake volunteer work for registered charities.

Provide private bus service users with the same concessions as STA bus service users.

Review the government's concessions policy to ensure that it is fair and reflects social welfare priorities.

Bring local providers and users of community transport services together to develop plans for better services and promote coordination of available resources.

Broker streamlined funding and administrative arrangements for community transport services that meets local needs - including funding from Home and Community Care, the Community Transport Program and funding from other agencies including NSW Health.

Redirect underutilised assets from proposed changes to the SSTS and pensioner excursion tickets to increasing community transport services.

Establish a network of regional community transport development workers across the state that are funded and coordinated by the Ministry of Transport.

Review mechanisms for improving taxi services for wheelchair users.

Review the level of rebates provided under the Taxi Transport Subsidy Scheme.

Charging for road use

Any implementation of road use pricing must be accompanied by rationalisation of the current taxation of motorists.

As a separate issue, undertake a joint review with the Federal Government of taxation, expenditure and other policies that are detrimental to public transport compared with private transport.

Following consultation with the community and stakeholders, consider implementing electronic road pricing (ERP) within the next 5-10 years as a means of effectively signalling to the community the external costs of road use - congestion, pollution, road wear and tear and accidents.

In the intervening period, take steps to facilitate the introduction of ERP, such as introducing two-way tolling and harmonising tolls across existing and new tolled arterials.

Decision criteria for transport projects

Undertake strategic, multi-modal transport planning that is integrated with urban planning. The Department of Infrastructure, Planning and Natural Resources should lead this project, utilising the expertise available in other agencies, including the Roads and Traffic Authority, State Rail Authority and the Transport Data Centre.

The multi-modal transport plan should be the basis for generating a suitable menu of infrastructure projects deemed capable of meeting government's announced transport objectives for the Greater Sydney Area.

All transport infrastructure projects must be compared and evaluated using rigorous cost-benefit analysis which takes full account of economic, social and environmental costs and benefits.

Last modified: Saturday, 16 January 2010