Transport
Ministers selected the most generous subsidies for petrol and diesel users, but turned down the opportunity to make public transport free, Marc Daalder reports
The cabinet considered, but ultimately decided not to make public transport free as part of its response to pressures on the cost of living, documents released to Newsroom under the Official Information Act show.
Transport Minister Michael Wood presented four options each for petrol tax cuts and cuts in public transport fares to his fellow ministers on March 14. roughly equivalent to a reduction in road user charges), but the least generous option for public transport users.
Newsroom requested access to briefings and cabinet documents related to the cost of living in May but was denied by the Ministry of Transport. It took another four months and a complaint to the Ombudsman before the documents were finally released.
One of those documents, a March 11 briefing, shows that Wood was initially only seeking an increase in fuel and road user charges that have occurred since Labor took office in 2017. This would lower the petrol price at the pump by 10.5 cents per liter. , although he expected it to last six months rather than the first three months that would eventually be announced.
In the March 14 cabinet paper, Wood offered this discount of 10.5 cents as a lower bound option and 25 cents as the highest option, but advised a middle ground approach of 15 or 20 cents.
“The higher the cut, the higher the cost to the National Land Transport Fund (and probably subsequently the Crown). But the higher the cut, the more support for households and businesses,” he wrote.
“If the cabinet chooses an option on the upside (e.g. 20 or 25 cents), it means a bigger increase at the end of the three-month period (to restore current rates). This could be difficult, especially if fuel prices continue to rise or are high. Fuel prices are volatile and difficult to predict. It is unknown whether prices would have fallen or increased in three months.”
The cuts have now been extended twice and now expire at the end of January.
For public transport, Wood asked the cabinet to choose between three or six months at half price or three or six months free. He recommended halving fares for six months, saying it was less expensive than scrapping fares completely, but it would give people more time to transition to driving on buses and trains.
“Compared to three months, six months provides more time to form mode shift habits. Mode shift is a critical part of meeting our emissions reduction targets,” he wrote.
Wood told Newsroom on Wednesday that the options the cabinet ultimately chose offered roughly similar subsidies to commuters over the course of a week.
“In general, someone who travels to and from work every day, five days a week, will save about $25 a week under the half-price public transportation policy. That’s about on par with what you’d expect from a person who refuels their tank once a week [with the 25 cent cut to fuel tax]. We have tried to have a broad level of equality between modes of transport in terms of the cost of living,” he said.
Green Party transport spokesperson Julie Anne Genter said she was disappointed that the government did not do more to subsidize public transport when she had the chance.
“We could have free public transport for a whole year and it would cost the government less than the petrol tax cuts they had chosen for three months,” she said.
“The petrol tax cut is not targeted, but it does subsidize the use of fossil fuels. Ironically, last week in response to the UN Secretary General’s call to tax fossil fuel companies, the Prime Minister said this doesn’t really apply in New Zealand because we’re advocating ending fossil fuel subsidies while at the same time spending over a billion dollars subsidizing petrol and diesel use.”
With the scheme lasting at least 10 months, would Wood have opted for a leaner grant?
“That’s a big kind of hindsight and hypothetical question that I really couldn’t answer,” he said. “In my opinion it was the right decision. Fuel prices have been incredibly volatile.”
Wood added that later analysis has shown that the fuel tax cuts will lead to “a small increase in overall emissions”, but he thinks greater support for public transport “will offset that somewhat”.
There is limited evidence on the impact of the fare reductions on public transport use. This is partly because the start of subsidies in April coincided with the bottoming of the first Omicron peak and the exit from Red.
Compared to pre-Covid-19 levels, rider numbers in both Wellington and Auckland increased from March to April and then increased more strongly in May.
A survey of public transport users in Wellington found that 4 percent of passengers had started using public transport for the first time because of the fare reduction. Another 13 percent said they were restarted by the grant, while 39 percent said they are using it more often than before. The rest had either not changed their behavior (40 percent) or had never heard of the half-price scheme (4 percent).
While polls have consistently shown that lower prices are unlikely to motivate most people to switch to public transport, the Wellington survey found that “cheaper fares” were linked to the most suggested service improvement. Just 8 percent of riders in November 2020 and July 2021 said cheaper fares, but that nearly doubled to 14 percent in the June 2022 survey.
In Auckland, a survey of public transport users and non-users found that 42 percent thought Auckland Transport services were affordable, compared with 28 percent who disagreed. Of riders, 43 percent said the half-price fares increased their usage, but only 5 percent of non-users said it prompted them to switch modes.
Wood said the limited evidence indicated that reduced fares could help operators reduce patronage to pre-Covid levels, but not necessarily move people who had never taken the bus before.
Rather than price, he said the biggest obstacle to further increasing passenger numbers was the reliability and frequency of services. Budget 2022 included $61 million to increase driver pay, make the job more attractive and help address staff shortages.
The documents released to Newsroom also show that the cabinet rejected the Ministry of Transport’s preferred method of subsidizing road user charges. A sharp reduction of $27 per 1,000 miles purchased would have delivered the greatest benefits to households, while keeping the heavy freight industry paying for their wear and tear on the roads.
Instead, ministers went for a 36 percent reduction per 1,000 miles purchased, giving households the same benefit as the ministry’s preferred option, but subsidizing truck companies by as much as $150 per 1,000 miles.