Labour’s Fare Cap Election Policy

The Labour Party has finally delivered an election policy: it’s about transport and the cost of living, and we think it’s a good one – they propose capping the cost of public transport.

Labour will make it cheaper for New Zealanders to catch the bus or train, by capping weekly fares at just $20 in Auckland, Wellington and Christchurch, and $10 a week everywhere else in New Zealand.

“Our fare cap is a major cost-of-living commitment designed to put money back into the pockets of commuters, students and families,” Labour Leader Chris Hipkins said.

“New Zealanders will be able to use public transport as much as they want all week for only $20 in our major cities and just $10 everywhere else – keeping more money in their back pockets.

“From 1 July 2027 under a Labour Government, once a commuter has reached their fare cap, every additional trip that week is free.

“Cheaper fares mean more freedom, freedom to get to work, freedom to study, freedom to attend appointments and freedom to spend time with family and friends without worrying about the cost.

“This is real cost-of-living relief. It means cheaper commutes, more money left at the end of the week, and a public transport system that works for everyone,” Chris Hipkins said.

“Public transport should help people get ahead, not become a luxury people get priced out of,” Labour transport spokesperson Tangi Utikere said.

“Families deserve certainty. Under Labour’s weekly fare cap, people will know exactly what the maximum cost of getting around will be each week.

“We want people catching buses, trains and ferries more often because that means lower household transport costs, less congestion on our roads and stronger public transport networks.

“Labour’s weekly fare cap will ensure New Zealanders can travel with confidence, knowing affordable public transport is there when they need it,” Tangi Utikere said.

Key policy details:

• Weekly fares capped at $20 in Auckland, Wellington and Christchurch.
• Weekly fares capped at $10 in all other regions.
• Applies across buses, trains and some ferries in Auckland, Wellington and Christchurch.
• Once the weekly cap is reached, all further public transport trips that week are free.
• Begins from July 2027 under a Labour Government.
• Costed at approximately $65m per year or less than 1% of the National Land Transport Fund.
• InterCity buses, Capital Connection, Te Huia, Mainlander and Waiheke ferries not included.

The announcement was covered widely, including by:
RNZ: Labour vows to put $20 a week cap on public transport, $10 outside main centres
Newsroom: Labour leads with its chin on transport cap costs: critics swing wildly
The NZ Herald:Weekly public transport costs would be capped at $20 for Auckland, Wellington and Christchurch under Labour government
Stuff: Labour reveals public transport fare cap in long-awaited election policy
The Post: Labour fare cap: The five public transport trips where travellers would gain the most
Pacific Morning News: Labour’s fare cap under scrutiny over cost, reach and real impact 

Fare Cap vs Discount: what’s the difference?

The policy immediately invites comparison to the 50% fare discount Labour put in place between April 2022 and July 2023.

At the time, ridership patterns were still down due to COVID /work-from-home, and fuel prices were also significantly discounted. Even so, the half-price fares had a positive impact, enabling journeys that wouldn’t otherwise have been made by public transport, according to research (supported via the NZ Transport Agency):

For the period that half-price fares were available for all users, close to a third of public transport users have reported that some of their past-week travel was a direct result of half-price fares.
• As a share of the total population, this was equivalent to between 6% and 9% of New Zealanders each week.
• However, for the entire period the proportion impacted may be higher. Based on responses in July-September 2023, close to a quarter (23%) of adults 15+ reported some form of new or additional PT usage due to HPF during this 14-month period.

The thing about a discount is, you still pay for every extra trip you make.

Whereas a fare cap acts as more of an incentive to make more trips – because once you’ve hit the cap, all of your remaining trips that week are free.

This means you’d think differently about how you travel, including using PT for trips you might not have otherwise done so. Anyone who’s used a Monthly Pass travel card gets this. As David Slack put it over the weekend:

We understand this principle perfectly well in other parts of life. We love a flat rate, an all-you-can-eat, an annual pass. We don’t need to get out the calculator and add up the costs of running even the cheapest of cars to make the comparison. $20 a week to get around (yes, granted, assuming it’s available to you) is a bloody good proposition.

In our view, a fare cap is a much cleverer model than a discount for stimulating greater public transport use, and the more people make more trips on public transport, the better the outcomes for the cost-of-living, and traffic decongestion.

There’s also something clever – and even subversive – about the proposal that the cap be $20 in cities.

Auckland’s current $50 weekly cap works well for people who travel long distances by public transport. But most trips in Auckland are just 1-2 zones, which means it’s hard to make enough trips to reach the $50 cap.

Whereas with a $20 cap, even someone commuting within a single zone would hit the cap after just over three days in the office – i.e. from Thursday afternoon, your trips for the rest of that week (and the weekend!) would be free. Or Wednesday afternoon for two zones. Wednesday morning for three zones, and Tuesday afternoon for four zones. Zing!

How many trips you’d need to take in Auckland, to hit the existing $50 cap (yellow) and Labour’s proposed $20 cap (green).

Another really interesting scenario we haven’t seen anyone discuss yet is: if the fare cap attracts new users, each contributing their $20 share, at some point the amount of fare income would start to go up. Win-win!

Fare Price vs More Services

The policy drew an immediate response from the government (and others), with the Transport Minister arguing that the research suggests it’s better to invest in services – more buses and trains, more often, in more places – than fare subsidies. (We can’t lie, it is gratifying to see such nuanced discussion of public transport policy, so quick off the bat!)

[Transport Minister Chris Bishop] said the government had looked at a range of fare subsidy options as a response to the fuel crisis.

“The advice from the officials is ‘don’t do this’.

“If you’re going to spend another dollar on public transport, it should go into public transport services rather than subsidies, which tend to be untargeted and tend not to be effective.”

The question of whether it’s better to invest in services or fare subsidies often comes up when there’s talk of making PT entirely free – and our view has always been, it’s not good if a fare subsidy takes away from an existing operating budget.

But that isn’t what’s being proposed here. Labour’s fare cap policy would be new funding for the PT sector.

Moreover, services have been improved over the last few years. Auckland has kept expanding its frequent bus network, adding the NX1, 12, 65 and 67 routes, even lauching a few more frequent services over the weekend. Plus rail services are about to get a major boost with the opening of the City Rail Link.

Of course, we can always use more – but the point is, the network is even better now than it was during the half-price fares, and something like a $20 fare cap would surely encourage more use of this improved network.

Interestingly, while former transport minister Simeon Brown called Labour’s policy “fanciful” and questioned where $65 million would come from, Bishop suggested investing many times that in services instead, saying the government:

would “possibly” consider using the $450 million emergency fund set aside in the Budget to put on more trains and buses during peak periods, he said.

This is of course a false binary. Encouraging more use of existing PT by reducing the cost barrier doesn’t rule out also investing in the quality and quantity of options. And the government is welcome any time to improve PT services across the motu, at peak and otherwise. Let’s hope they do.

Cartoon by Sharon Murdoch for Stuff

Paying for it

Labour has said the cap would be funded from the National Land Transport Fund (NLTF), which is administered by NZTA/Waka Kotahi.

About 60% of the NLTF is sourced from fuel taxes and Road User Charges, with the rest coming from general taxes. Public transport operations are funded by a mix of NLTF, a local government share (via rates), and people paying fares.

The estimated $65 million/ year for Labour’s public transport fare cap amounts to less than 1% of the NLTF. As Hayden Donnell (and many social media wits have pointed out) that would buy you a short stretch of four-lane highway:

…what if the party ends up getting rid of roughly 103 metres worth of the East-West Link in Auckland, which is expected to set us back $3.8bn-$4.1bn for just 5.5kms of new tarseal? Nothing says wasteful spending like paring back the most costly per-kilometre road in the world.

The government was quick to highlight that the NLTF is already “oversubscribed” – without clarifying that this is because of the many over-sized, low value, unaffordable highways that dominate their current transport plans. The Minister himself understands this, but seems unable to fix the problem.

Subsidy isn’t a bad word

There’s been a lot of talk about a fare cap being a “subsidy”. And of course it is. Subsidies are common throughout the transport sector, and it’s peculiar that some seem to think they just need to say the word to damn an idea.

The question isn’t: is a fare cap a subsidy? The question is: is it a valuable one?

An affordable public transport trip is immediately valuable for the person making it. If your daily commute to work or study is suddenly free from the middle of the week onwards, you instantly have a bit more money for the other costs of living. Or to put into savings. Or to afford a treat – good news for hospo and retail.

But the benefits go well beyond the person on the bus. More people using PT means less traffic congestion, better air and water quality, and let’s not forget: less dependence on imported fossil fuel. Which is why, all over the planet, governments happily subsidise public transport – because the value outweighs the costs.

All transport is subsidised

Financial subsidies, or transfers, are used to unlock value that we’d otherwise miss out on.

The 40% of the NLTF that comes from the Crown is a subsidy. Road taxes poured into the NLTF from busy city streets routinely subsidise emptier rural roads. And local councils use rates to subsidise all transport modes.

There are transfers everywhere in the system. That’s because the benefit to the wider economy of functional transport networks is diffuse, and there’s no easy and efficient way to charge all those who benefit all the time (road pricing, please!).

And yes, some of the cost of operating PT comes from road taxes – precisely because drivers benefit from all those people choosing PT, or biking and walking, who free up space so that drivers can keep driving.

As described by David Slack, again:

…if you’re in Nelson you probably don’t use the Waikato Expressway, and if you’re in Henderson you probably don’t use Transmission Gully much. But where’s the guts-aching about that? We pay for plenty of things we don’t personally use: schools after our kids have left them; hospitals while we’re healthy; frigates pretty much always, because that’s what a country is.

And regarding the roads you do use: Who paid for them? Everyone did, including the people on the bus, who are subsidising your driving rather more heavily than you’ll ever subsidise their fare.

Questions and Answers on Q&A

On Sunday’s Q&A on TVNZ, Labour’s transport spokesperson Tangi Utikere got quite a grilling about the policy. You can watch the video here, and there’s a written version of the story here.

Jack Tame and his researchers did a very thorough job, offering many edge cases and some (confused and confusing) attempts to find financial holes in the plan. You can see why the Prime Minister and others are famously reluctant to sit in that chair.

It’s not our place to answer these questions – but we want to address a few, in the interest of public understanding.

1. Why is the fare cap not means-tested?

Or, as Tame posed it: what if a rich person from Eastbourne benefits from the fare cap?

Is this question ever asked about roads? Rich and poor New Zealanders alike drive on all our roads at the same cost – road tolls, fuel tax, and road user charges are the same for everyone, regardless of financial status. We look forward to Q&A asking if the fuel tax should be higher for those with higher incomes.

Obviously – just as with road tolls, fuel tax, and road user charges – it is much cheaper and easier to administer these things as a flat rate.

Besides, a successful PT system is one that is so useful and easy to use that people of all kinds can and do use it. That’s true whether you’re living in Eastbourne or Ōtara, Naenae or Remuera, whether you’re commuting to your high-paying city job or travelling in the other direction to clean a house or a hospital.

More well-off people on the bus or train? Big win. Especially for congestion.

As famously articulated by the former mayor of Bogotá, Enrique Penalosa, “An advanced city is not one where even the poor use cars, but rather one where even the rich use public transport.”

2. How do the benefits to individuals add up to greater than the cost of the scheme?

This one’s easy.

Tame attempted, as have others, to locate a fiscal gap… by adding up possible individual savings, multiplying them by potential users, and then comparing that to the $65m proposed budget. As reported in The Bulletin:

According to Tame’s accounting, $25 a week, on average, for $65m a year means, it’s only 50,000 people, not hundreds of thousands of people. So, Tame presses, it’s of significant benefit to less than 1% of the population. Hundreds of thousands might benefit, he said, but not every week, and certainly not at $25 a week. 

It simply doesn’t work like that. The genius of a fare cap (as opposed to a discount) is that you don’t need to fund a whole new bus or train every time a person takes a new journey under the fare cap.

The bus or train already exists, and has existing spare capacity. The individual benefits multiply and accrue, way ahead of the collective cost. Another reason to like the idea.

3. But aren’t buses and trains full already?

Some PT services are indeed full or busy at peak. But the majority of journeys people make are outside the morning and evening peak (In Auckland 2/3 of PT trips occur outside of the peaks). And in general, there’s a lot of spare capacity all through schedules. In most areas, outside of Otago, ridership is still below pre-COVID levels.

The nature of a fare cap incentivises more uptake at all kinds of times – you might say, the “all you can eat” aspect encourages people to graze. For existing passengers who already travel at peak times, once a cap is in place all sorts of new journeys for any purpose become free.

So we can expect a lot of new riders to fill the existing capacity across the day, and during weekends.

One obvious example is Auckland’s trains. For reasons well covered on this site, the system currently only carries a little over 60% of pre-pandemic ridership.

However, Auckland now has some 95 trains, up from the original 57. So there is an enormous amount of latent capacity at the very core of the new Auckland system, ready and waiting for exactly this sort of stimulus.

And thanks to Council’s Climate Action Targeted Rate there are also more – and more frequent – bus services too, many of which are electric. This is a system waiting to make a quantum leap.

And it’s not just trains and buses in Auckland and Wellington – buses in provincial towns all over the motu have capacity too.

4. Is the MoT just plain wrong on this stuff?

We concur with Jack Tame that Utikere should have taken the time to read the Ministry of Transport’s official advice on fare subsidies – because it’s so easily demolished.

The MoT’s opinions on this are frankly bizarre. For starters, they come down against universal fare subsidies on the grounds they “will result in many people who do not need support with their transport costs receiving it.” In other words, if a few well-off people were to benefit, well then, it’s far preferable if nobody benefits at all.

This is daft, and a completely invented moral hazard, given the same terror is never applied to other modes of travel. Does the MoT advise against Crown funding for new roads, lest some rich people drive on them (which they certainly do)? Of course not. We know the wealthy fly way more than any other group, so why are there public roads to airports, let alone open to all?

The MoT also says fare subsidies are bad because they would increase use of public transport, even “risk[ing] patronage increases beyond what the network can currently accommodate at peak times”. What a fine problem to have!

Increasing patronage is the point! And it’s baffling the Ministry can’t see the value of utilising the existing capacity. There is no world in which more ridership is a bad thing – unless, that is, the MoT truly believes public transport costs more than the value it provides.

And if so, that idea must be grounded in the (mistaken) belief that the only public transport use that counts is commuting, i.e. people getting to work, at peak times.

Here’s the thing. Journeys to work only make up around 20% of all trips! So it’s a profound mistake to use Census journey-to-work data to stand in for all travel. Just as bad as using the word ‘commuter’ to describe people moving around for all the myriad human reasons we do.

An understandable slip by Joe Public, perhaps – but inexcusable from the Ministry, who should know better.

In conclusion

Overall, we view this proposed policy positively.

A key issue for New Zealand – and a huge opportunity – is the imbalance in New Zealand’s transport networks, especially in cities and towns, which is also where most of us live. This imbalance is both a symptom and a cause of the low productivity of our urban economies, so fixing it, along with the land use it supports, should be a core focus of governments at all levels.

And there’s also the fact that across the motu, our public transport networks are steadily improving – and certainly have spare capacity.

Labour’s proposal for a fare cap, which would ideally go hand in hand with continued improvement to services, looks like a clever, relatively modest but quick-acting way to address this imbalance.

Moreover, it offers a helpful quick fix to a range of pressing issues, not least the cost of living, and reliance on costly imported fossil fuels (remember this one), traffic congestion, pollution and emissions, road safety, public health, as well as greater independent travel options for children and young people and disabled people and older citizens who can’t or don’t drive, and efficient use of existing infrastructure.

All in all, what’s not to like?

We look forward to other major election policies on transport from all parties.

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