A fare revision formula with a lot more heart

This story was first published in The Straits Times on Nov 6, 2013

THE recommendations of the Fare Review Mechanism Committee demonstrate a fine balancing act.

They seek to ensure bus and train fares remain affordable to the people who rely the most on public transport, and yet strive to ensure the long-term commercial viability of transport operators.

While they did not deviate from past principles that have shaped fare formulae here, the new direction clearly embraces a lot more heart, and is generally more equitable to all parties.

In focus is the proposed fare revision formula. Housing and cars are to be removed from the inflation component, which will now focus on core inflation. This will shield public transport users from the effects of rocketing certificate of entitlement (COE) and property prices.

An energy component is proposed, to better reflect the growing impact of electricity and fuel in an operator's basket of expenses. But the weightage of the productivity component is to be cut from 1.5 to 0.5, so commuters benefit less from an operator's efficiency gains.

The new formula would have resulted in a 2.1 per cent rise in fares if it were applied this year - curiously identical to what the old formula would have thrown up.

The difference is that operators must contribute 20 per cent to 50 per cent of a fare hike to a fund that dispenses transport vouchers to the lowest-income group.

These vouchers may last longer, if a suite of proposed concessions are accepted. At the forefront are concessions for lower-income workers and people with disability.

Thus far, Singapore has adopted a pragmatic stance - that the neediest among us should find relief from the various welfare schemes. The suggestion that the Government funds blanket concessions for the two groups signals a major shift in policy - even if transport company SBS Transit did mull over discounts for the disabled four years ago.

How meaningful the shift is now depends on the quantum of concessions the Government will decide upon, and the number of people it will grant them to. Of course, there will be quarters asking why the Government cannot foot the bill for all concessions.

For instance, government subsidies in Britain allow various groups of commuters to travel for free. These include those over 60 years, the disabled, and children up to the age of 15. Those between 16 and 18 pay concessionary rates. Card users also enjoy a daily cap of £4.40 (S$9) regardless of the number of trips they make.

That, of course, comes at a cost to taxpayers. According to a recent British government report, subsidies have risen from £24 million or 2p per passenger trip in 2001 to £393 million or 17p per passenger trip last year.

In other words, there is no free lunch. But the principle of using tax revenue to subsidise public transport is sound. A 2007 World Bank study suggests that it is the most progressive method. It found that funding concessions via general taxation instead of cross-subsidies (from other types of users) "would significantly improve the distributive impact of this policy".

Still, recommending that the Government fund two concessions is a step in this direction.

And seen in the light of recent moves to improve the lot of public transport commuters - from the infrastructural investments to the stricter enforcement of service standards - the significance of the fare review recommendations becomes weightier.

Significant too is the new affordability indicator recommended by the committee. On top of tracking how much the second quintile income group (representing the average public transport commuter) spends on transport, it says the second decile group (the second poorest group) should be tracked too.

Again, this ensures fares are kept affordable to more people in the low-income segment.

The only move that jars is the removal of taxi expenditure from the affordability indicators, as many in poorer households take taxis because they need to - for instance, aged or disabled members of the family who are not physically able to take a bus or train.

This is likely to paint a rosier picture of the transport expenses that such a family has to bear.

And it may be the splinter that festers in an otherwise sound, prudent and well thought out plan to make fares equitable to all.

This story was first published in The Straits Times on Nov 6, 2013

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