PAUL MEES

Inveterate advocate for Victoria’s public transport system Dr Paul Mees died in Melbourne yesterday after a fifteen month battle with cancer. He was 52.

Current Public Transport Users Association president Tony Morton said last night that Professor Mees “personified the transport debate in Victoria, and called successive governments to account for their neglect of public transport”.

He certainly did.

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PUBLIC TRANSPORT FUNDING

Whilst we’re discussing public transport proponents, an article “Maybe buses should be free” in The Economist on the same day Paul Mees died  received a number of responses. I reproduce the most logical of these comments which came from Dr Gavin R. Putland:-

“The benefit of public transport, net of fares paid for actual use, is shown in prices of access to locations where that benefit is available — in other words, LAND VALUES. So the beneficiaries of any extension or improvement of public transport include not only the passengers, but also the affected property owners. The same principle applies to other types of infrastructure whose benefits are location-specific.

Equity therefore demands that property owners give back some of the benefit through a charge on UNEARNED INCREMENTS in land values. Paradoxically, the property owners would be better off than they are now. If the responsible government, through the tax system, received a certain fraction of every unearned increment, infrastructure projects whose cost/benefit ratios are less than that fraction would be profitable for the government and would therefore proceed. Thus property owners would reap land-value windfalls that they would not otherwise get, due to projects that would not otherwise be funded.

Implementation does not require an increase in taxation. It requires a one-off change in the tax BASE so that future investment in infrastructure pays for itself by expanding the tax BASE without any increase in tax rates. The initial change in the base could be revenue-neutral. For example, a range of inefficient taxes, including existing property-transfer taxes, could be replaced by a property-vendor duty on real capital gains. The rate of the vendor duty might then be in the “sweet spot”: high enough to drive infrastructure investment at full capacity, but low enough to give property owners an attractive slice of the benefit.

Because the uptake of public transport will be socially optimal if tickets are priced at marginal cost, and because taxes on uplifts in land values have low efficiency costs (none if they are implemented as holding charges), the efficient way to fund public transport is to cover the marginal cost through fares and the fixed costs through uplifts in land values. Allowing for transaction costs and for the savings that can be made by smoothing the load, the best practical approximation to marginal-cost fares is to offer free travel at off-peak times, using fares only as congestion charges. If that requires a proof-of-payment system, so be it. But with better funding through land-value capture, hence better provisioning, the scope for “congestion charges” would be narrower than at present.”

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.