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Public transport fare hike : The fare increase formula

By Leong Sze Hian

The Public Transport Council says that it will be imposing fines on transport operators if they fail to meet certain standards of service.

These fines, as reported by channelnewsasia here, can be “$100 (per day per bus service) and $10,000 (per month per standard)”.

The PTC has also declared fines for such failures last August.

Imposing fines on public transport operators may result in additional costs of meeting new service standards and the fines eventually passed on to commuters.

A more effective deterrent

A more effective deterrent to ensure high service standards may be to peg some element of failure to meet service standards to the formula for fare adjustment.

For example, service standard lapses may be equated to a slight drop in percentage from the 50 per cent wage increase and inflation in the fare adjustment formula, (see here) or a reduction in the maximum 1.7 per cent fare increase allowed.

With the recent increase in taxi fares, more people may take buses and the MRT. Consequently, revenue and profits of operators of the MRT and buses may rise. Therefore, I suggest that more time be given to assess the impact of the taxi fare increase before the Public Transport Council makes a decision on the bus and train fare increase application.

The main reason given for the fare increase is the rising cost of diesel. Why not consider reducing the tax on diesel, so the benefit can be passed on to commuters?

The lower income vs the higher income

The fare adjustment formula is pegged to the change in average wages and inflation (consumer price index or CPI).

It is the lower-income group that has no choice but to use public transport. Therefore, I suggest some adjustments be considered to take into account declining wages and relatively high inflation of the lower-income group.

Although workers were paid 4.3 per cent more last year, household incomes in the 11th to 20th percentile fell by 4.3 per cent a year from 2000 to 2005.

The incomes of the 21st to 30th percentile dropped by 0.5 per cent and the 31st 40th percentile rose by just 0.3 per cent. As to inflation, the lowest 20 per cent income group's CPI rose by 1.6 per cent a year, compared to a decline of 0.6 per cent in the highest 20 per cent income group.

In 2005, these two groups' inflation was 1.3 and -0.1 per cent respectively. The CPI increase in the lowest 20 per cent group was the highest among all income groups.

If this trend of declining wages and higher inflation continues, the current formula may hit the lower income group most in the future.

Reflecting the CPI & wage changes

As there were about 420,000 cars (390,000 private plus 30,000 others) in 2004, according to the Land Transport Authority website, rather than just take the CPI and wage increase of the entire population, more weight should be given to reflect the CPI and wage change of those who have to use public transport.

The rising profits of the transport operators, which I understand has been the case after the previous two fare hikes, should also be taken into account in the formula.

In the final analysis, perhaps the ultimate measure of whether the formula is fair is whether transport operators' profits continue to rise.

The buses and MRT are essentially a monopoly as there is no duplication of routes.

The fare adjustment formula enables operators to keep increasing fares and profits, because rarely has there ever been a year when both average wages and inflation have declined.

Interesting Note: On the same day that the transport companies revealed to the media that they have applied for fare increases, the government also announced that it is setting aside $10 million dollars to help the needy.

Does this mean that the fare hike is a foregone conclusion – even before the Public Transport Council deliberates and decides whether to approve the fare hike?

*See screenshot below for channelnewsasia's report (click to enlarge):

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