Chapter 29 – Economic Activities - Urban Transit
29) ECONOMIC ACTIVITIES - URBAN TRANSIT
Key Points of ACT Argument

The method of assessment of the Urban Transit category used in the 1999
Review was based on the net costs of operation of urban transit bodies. The
standardised net cost was derived from separate assessments of gross
expenditures and gross revenues.

The Commission in its discussion paper CGC 2001/10 ‘Urban Transit – A
Proposed Assessment for the 2004 Review’, signalled its intention to change
the focus of the assessment to one based on concessions paid to urban
transit operators, including concessions compensating for operational
shortfalls.

The ACT supports in principle the proposed concessions and other payments
(cop) assessment of urban transit as it provides a way to deal with the
growing trend of commercialisation and privatisation in urban transit
provision, and offers the potential advantages of reduced complexity and
increased transparency.

Conceptually the cop assessment and an assessment based on gross
expenditures and revenues should provide similar results – assuming
underlying needs remain consistent. The ACT is concerned that the cop
assessment proposed in the Commission’s Discussion Paper differs
significantly from the previous gross assessment. This implies a substantial
change in the assumptions about underlying needs and/or the basis for
measuring needs.

The ACT supports the measurement of needs for minimum Level of Service
Standards, as it acknowledges the significant economies of scale available to
large urban transit systems. Existing data shows that the net expenditure per
passenger declines as urban transit systems increase in size.

The ACT does not support the introduction of an urbanisation factor on the
following grounds:
–
there is no evidence that States make additional payments to overcome
congestion; and
–
the factor as proposed double-counts the urbanisation effect which is
accommodated in the passenger use factor.

The ACT does not support an assessment of infrastructure costs as the
evidence suggests costs and, therefore, concessions are lower per
passenger for larger urban transit systems.

The ACT considers that the proposed assessment is flawed in that the
factors for service level, urbanisation and infrastructure costs are calculated
on a per capita basis rather than correctly using a per passenger basis.
Scale Affected Expenditure
 The ACT supports the assessment of small scale and input costs disabilities.
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Chapter 29 – Economic Activities - Urban Transit
National Capital Influences

The ACT supports the continued assessment of a national capital allowance,
but seeks an increase in the allowance to $2.8m per annum.
Background
29.1. This category comprises net operating expenditures, including payroll
tax, of State-run urban rail, bus, tram and ferry services, together with
government operating subsidies paid to private bus and ferry operators in, the
capital cities and in the cities of Newcastle, Wollongong, Geelong, Ballarat,
Bendigo, Gold Coast, Townsville, Toowoomba, Cairns, Rockhampton,
Sunshine Coast, and Launceston.
Subsidies paid by the State of
Queensland to the Brisbane City Council on its transport operations are also
included.
29.2. Payments by the State budget sector to the PTE for reimbursement of
community service obligations and concessions are deducted from the
receipts of the trading enterprise. Similarly, any dividends, tax equivalent
payments and other tax-like contributions received by general government
from a PTE are deducted from the expenditure of the PTE. All fare box
revenues, contract operating revenues and income received from advertising
and charters are netted off.
29.3. The ACT’s position relative to the States, based on the 1999 Review
methodology and using the latest available data is illustrated below. This
sees the ACT being assessed by the Commission as having positive needs in
this category.
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Chapter 29 – Economic Activities - Urban Transit
STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE:
URBAN TRANSIT, 2000-01
140
120
Aust.
Avg.
100
80
$pc
60
40
20
0
NSW
Vic
Qld
WA
SA
Standardised
Tas
ACT
NT
Actual
Standardised expenditure is the amount that the Commission deems the ACT is required to
spend if it is to provide an average level of service.
Actual expenditure is the actual funding spent by the ACT on this category in 2000-01.
29.4. A category structure is provided in the following table and illustrates the
major components of the current assessment, together with comments on
how the ACT is affected by the application of the different factors.
URBAN TRANSIT:
SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY
Component factors assessed
Public Transport Users
(wgt 99.90%)
Demand
ACT position
The ACT was assessed as having higher than
average needs in this category due the relatively high
proportion of the population in the ACT using public
transport.
National Capital
(wgt 0.10%)
National Capital
Introduction
29.5. In the 1999 Review the assessment of Urban Transit was done by
examining needs on both gross revenues and expenditures. Separate
assessments were justified on the basis that the disabilities that affect
revenue and expenditure are different.
29.6. The assessment recognised that while larger and more densely
populated cities faced higher costs in providing urban transit services, they
also tended to have relatively higher potential to collect revenue.
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Chapter 29 – Economic Activities - Urban Transit
29.7. For the ACT, the assessment recognised the impact on costs of
diseconomies of scale in meeting minimum service levels and the affect on
revenues of the provision of free parking in Commonwealth controlled areas.
29.8. The assessment of urban transit was hampered by the lack of
comparable data and the differences between States and Territories in the
mode of service delivery. This included the shift to commercialisation and
privatisation of some services.
29.9. In its discussion paper, Urban Transit – A Proposed Assessment for
the 2004 Review, CGC 2001/10, issued in September 2001, the Commission
proposed that an assessment based on the net subsidies provided to urban
transit operators would assist in simplifying the assessments and go
someway to overcoming the data problems.
Concessions and Other Payments Methods
29.10. The ACT’s first urban transit submission to the 2004 Review of State
Revenue Sharing Relativities dated 14 November 2000, stated that the
Commission was ‘on the right track’ in proposing a Concessions and Other
Payments (COP) type of assessment for the urban transit category.
29.11. Having examined the further work completed by the staff of the
Commission in its discussion paper, the ACT continues to support the
proposed assessment framework in principle. The ACT believes that the new
framework is appealing in that it:

provides a way of dealing with a number of the data deficiencies present
in the current framework, that will be exacerbated by the growing trend in
urban transit provision by Public Trading Enterprises (PTE’s) and the
private sector;

offers the potential advantages of reduced complexity and increased
transparency; and

includes an assessment of non-concessional subsidies which is crucial in
capturing the diverse range of disabilities faced by the States.
29.12. Conceptually, a cop assessment and an assessment based on gross
expenditure and revenues should provide similar results assuming similar
needs are assessed. The ACT is concerned that the proposed assessment
results in significantly different outcomes than the existing assessment. The
ACT believes that this is due to a change in the needs assessed and
flawed calculation of some of the needs.
29.13. The proposed COP assessment differs significantly from the current
urban transit assessment framework. An analysis of the reasons for such a
large change is warranted. The implication is that the current assessment
has proven to be substantially inadequate. The ACT does not support such a
conclusion.
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Chapter 29 – Economic Activities - Urban Transit
29.14. The ACT notes that the Commission has previously stated that: “…an
important part of the process is to ensure that the results of needs
assessments for each category meet expectations. The Commission reviews
what it knows about States policies and circumstances for each category to
check that the redistribution looks reasonable in relation to State advantages,
disadvantages and policy differences. Looking at the aggregated results, the
total revenue redistribution is used as a further reality check.” 1
29.15. A significant reason for the dramatic shift in standardised expenditures
under the proposed assessment is the introduction of an ‘urbanisation’ factor.
The ACT considers that there is no basis in fact for the assessment of an
urbanisation factor. Similary, there is no requirement for a infrastructure
factor. In addition, the assessment of needs in respect of Service Levels,
urbanisation and infrastructure incorporate a fundamental flaw. The removal
of the urbanisation factor and the correction of the flaw in the assessment of
service levels and infrastructure costs will reduce the difference between the
proposed and current assesment and, thereby, go a long way to removing
concerns over the unsubstantiated shift in assessment outcomes.
Service Level Factor
29.16. The ACT has consistently argued for the assessment of service level
disabilities. Clearly public transport must meet the minimum requuirements of
access and affordability. The cost of providing access in cities of smaller
populations and less densely populated will be higher than that of larger and
more densely populated cities.
29.17. Data gathered by the Commission during the 1999 Review show that
boardings and or journeys per capita (using urban populations) are much
higher for the larger and more densely populated cities. This means that
vehicles are more likely to carry a higher number of passengers in these
cities, thus reducing the unit cost. This conclusion is supported by the unit
cost curve derived by the Commision during the 1999 Review. 2
29.18. The existence of economies of scale mean that the net expenditure
(assuming a standard revenue effort) will be less per boarding for longer
urban transit systems. Therefore, although the total net cost of an urban
transit system increases as the system increases, the subsidy per passenger
decreases as shown in Table 29.1.
1
Commonwealth Grants Commission, Discussion Paper 2001-4: Implementing Horizontal
Fiscal Equalisation.
2 Commonwealth Grants Commission, 1999 Review Working Papers, Volume 5, page 134.
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Chapter 29 – Economic Activities - Urban Transit
TABLE 29.1 – NET EXPENDITURE AND STANDARDISED NET
EXPENDITURE, URBAN TRANSIT, 1996 - 1997
NSW
Vic
Qld
WA
SA
Tas
ACT
NT
Aust
Revenue ($m) (a)
500.2
266.1
115.9
54.9
45.7
6.5
17.2
1.9 1008.4
Expenditure ($m) (b)
956.9
590.5
285.2
169.3
156.8
19.6
43.9
6.7 2228.9
Net Expenditure ($m)
(c = b - a)
456.7
324.4
169.3
114.4
111.1
13.1
26.7
4.8 1220.5
Boardings (millions) (d)
503.1
320.3
95.7
79
58.5
7.9
17.9
3.4 1085.8
Net Expenditure /
Boarding ($) ((c/d)
0.91
1.01
1.77
1.45
1.90
1.66
1.49
1.41
1.12
Net Standardised Exp /
Brdg ($) (e)
0.86
0.90
2.08
1.51
2.11
1.91
1.97
1.37
1.12
(a) Commonwealth Grants Commission, 1999 Review Working Papers, Volume 5, Table 1, page
179
(b) Commonwealth Grants Commission, 1999 Review, Working Papers Volume 2, Table 1, page
180.
(c) Commonwealth Grants Commission, 1999 Review, Working Papers Volume 3, Table 1, page
182.
(d) Net Standardised Expenditure derived by standardising revenue to the Australian average
fare per journey kilometre.
29.19. The inclusion of an appropriate service level factor will take account of
the increasing returns to scale for urban transit systems.
29.20. The ACT considers that a needs assessment reflecting the scale
effects of service levels is justified. However, the measurement of the needs
should be based not on urban population but using numbers of passengers.
The use of urban population underestimates the scale effects as it does not
take into account the benefit to efficiency of higher passenger numbers per
vehicle kilometre travelled.
Urbanisation Factor
29.21. The ACT considers that the proposed urbanisation factor is not justified
because:

there is no evidence that states or territories provide additional subsidies
for overcoming congestion; and

even if subsidies were provided with this intention, they are already
accounted for in the passenger use factor.
29.22. Accordingly, the ACT proposes that the assessment not include an
urbanisation factor. Should the assessment of an urbanisation factor be
considered as necessary, this factor should be based on the subsidy per
passenger rather than per urban population.
29.23. The discussion paper theorises that governments provide subsidies to
urban transport providers to overcome congestion. The assumption is that
the greater the congestion the higher the amount of subsidy.
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Chapter 29 – Economic Activities - Urban Transit
29.24. It is difficult to see how such subsidies are provided in practice. The
ACT considers that it is self-evident that government subsidies are limited to
the net cost of operating urban transit and do not exceed this amount.
Accordingly, if subsidies were paid for congestion it would mean that:

such subsidies would displace other forms of subsidy, such as nonconcessional subsidies;

high congestion leads to higher costs and therefore additional subsidies;
or

standard fares are lower in congested cities – presumably to attract a
higher level of patronage.
29.25. The ACT considers that none of the above alternatives apply. The
Commision’s own analysis, as discussed in the previous section of this
chapter, shows that efficiency increases as public transit systems increase in
size. This is consistent with the findings of numerous studies which show that
higher density leads to more efficient and profitable public transit systems.
This primarily results from a higher number of passengers carried for each
vehicle kilometre travelled and, consequently, higher fare revenue per unit
cost.
29.26. Table 29.1 shows that, contrary to the assumption underpinning an
urbanisation factor, the subsidies per passenger decreases as urban transit
systems increase in size.
29.27. According to data provided by States and Territories to the 1999
Review and reproduced in Table 29.2, there is no evidence that more
congested cities leads to lower fare pricing.
TABLE 29.2 - REVENUE AND BOARDINGS, 1996-97
Syd
Mel
Bri
Revenue ($m)
500.2
266.1
115.9
54.9
45.7
6.5
17.2
1.9
1008.4
Boardings (m)
503.1
320.3
95.7
79
58.5
7.9
17.9
3.4
1085.8
0.99
0.83
1.21
0.69
0.78
0.82
0.96
0.56
0.93
Average Revenue
/ Boarding
Per
Ade
Hob
Can
Hob
Total
Source: Commonwealth Grants Commission, 1999 Review Working Papers, Volume 5,
Table 1, page 179 and Table 3, page 182.
29.28. If subsidies are provided for congestion, it would not appear that they
are provided in the form of lower average fares. The only mechanism to pay
subsidies to reduce congestion that appears to be available is through
general non-concessional subsidies.
The ACT contends that specific
subsidies for congestion do not in fact exist. Rather, States and Territories
pay concessional subsidies and any remaining shortfall in revenue is met by
general non-concessional subsidies.
Disabilities for general nonconcessional subsidies are assessed by the proposed passenger use factor.
29.29. The proposed passenger use factor reflects the increased usage of
public transport in larger and more densely populated cities. The inclusion of
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Chapter 29 – Economic Activities - Urban Transit
this factor increases the needs assessment and therefore the standardised
subsidy for large cities. The inclusion of a further factor for urbanisation
would result in double counting of the impact of urbanisation.
29.30. The inclusion of an urbanisation factor is not supported by
evidence. The ACT considers that the proposed urbanisation factor
would double-count the impact of larger cities on urban transit
operatives.
29.31. Notwithstanding the above evidence, should the Commission be
disposed to include an assessment of congestion, the ACT prefers the key
transport indicators approach.
29.32. The ACT believes that the key transport indicators approach has the
potential to be more accurate than the congestion approach. This is mainly
because it is likely to be based on actual urban transit data that reflects some
of the prevailing circumstances of urban transit in each State.
29.33. The Territory does, however, submit that a disability factor should only
be developed along these lines if appropriate data can be compiled for all
States, as the ACT does not believe that the Commission is in a position to
adequately estimate missing data.
29.34. While the ACT accepts the use of trip numbers and total distance
travelled, the Territory believes that data relating to travel time is not
comparable. The lack of comparability results from the large disparities in
travel times resulting from peak and off-peak periods, and the effects of policy
influences such as route choice and the location and number of stop points.
29.35. The Commission believes that the cost of overcoming congestion in
urban areas could be used to estimate the size of subsidies required, and that
the Bureau of Transport and Communications Economics (BTCE) congestion
cost estimates (using both selected light (car) and heavy vehicle (truck, bus
etc) data) could be used for this assessment.
29.36. The ACT considers that an urbanisation factor based on the BTCE’s
capital city congestion costs represents a poor proxy for assessing
urbanisation subsidies for a range of reasons.
29.37. Based on evidence from a number of States, subsidies of any type
aimed at overcoming congestion costs are unlikely to be effective. Evidence
indicates that demand for public transport is relatively inelastic.
29.38. In ACTION’s Community/Customer Satisfaction Survey Report for
2001 an average of 86.0% of respondents stated that cheaper fares would
not cause them to change their mind about using ACTION on a regular basis.
29.39. Additionally, the NSW Independent Pricing and Regulatory Tribunal
(IPART) believes that “…lower public transport fares are not likely to attract
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Chapter 29 – Economic Activities - Urban Transit
car travellers away from their car” 3 and the Centre for International
Economics, in an independent study for IPART stated that “…changes in
public transport fare levels are unlikely to have a major impact on patronage
levels”. 4
29.40. In essence, the ACT considers that a major reason why demand is
price inelastic, is because of the convenience of car travel (nil waiting and
transfer time). Again this is supported by ACTION’s Community/Customer
Satisfaction Survey Report for 2001 which showed that nearly 79% of nonusers and non-regular passengers do not use ACTION bus services because
they believed it to be inconvenient or they had their own car.
29.41. Additionally, commercial vehicle traffic will always remain, irrespective
of the level of subsidy offered to urban transit users, as urban transit
providers are not in a position to undertake the carriage of goods to
wholesalers and retailers.
29.42. It appears to the ACT that the BTCE estimates overstate the potential
subsidy requirement. On the estimates provided, Sydney’s congestion cost is
estimated to be nearly 6 times that of the ACT. This is not supported by other
benchmarks.
29.43. One benchmark that could be used is average annual daily traffic
(AADT) road use data which is already utilised by the Commission in the
current roads assessment. While the data are State based rather than city
based, they do provide a comparative measure as this data are based on
urban arterial roads (NAASRA classes 6 and 7) which in the case of Sydney,
dominates the data.
29.44. The 2001 Update data, replicated in the following table, shows that
NSW’ traffic counts are closer to that of the other States. NSW’ AADT is 1.23
times that of the ACT’s.
TABLE 29.3 - TRAFFIC ON SEALED ARTERIAL ROADS, ALL VEHICLES
NSW
Vic
Qld
WA
SA
Sealed Roads
Urban (AADT) 17,806 14,828 18,707 14,093 16,080
Relativity
Tas
ACT
NT
Aus
8,994 14,496 10,019 16,025
1.1111 0.9253 1.1674 0.8794 1.0034 0.5612 0.9046 0.6252 1.0000
Source: 2001 Update relativities - Commonwealth Grants Commission, Report of State
Revenue Sharing Relativities 2001 Update.
29.45. A further benchmark reflecting traffic congestion is bus speed
(min/kms). This data, identified in the table below, indicates that Sydney’s
congestion is only 1.8 times greater than that of Canberra, rather than a figure
of 6 times based on the BTCE data.
3
NSW Independent Pricing and Regulatory Tribunal, City Rail and STA Buses and Ferries,
Public Transport Fares from 1 July 2001, Determinations 1&2, June 2001, page 14.
4 NSW Independent Pricing and Regulatory Tribunal, ibid, page 15.
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Chapter 29 – Economic Activities - Urban Transit
TABLE 29.4 - PROXY FOR CONGESTION COSTS – BUS SPEED
Syd
Bus speed in min/kms
3.61
Mel
3.33
Bris
Per
2.88
2.51
Adel
2.71
Hob
2.52
Can
2.05
Dar
2.24
Source: Commonwealth Grants Commission, Report of State Revenue Sharing Relativities
1999 Review, Working Papers, Volume 5, Appendix D, page 187.
29.46. It would appear to the ACT that the BTCE’s congestion costs must be
influenced by other factors given that the outcomes from this data are not
comparable with other benchmarks such as AADT and bus speed data. The
ACT believes, therefore, that the use of BTCE estimates is poor proxy for
urbanisation.
29.47. Should the Commission proceed with assessment of an
urbanisation factor the Territory’s clear preference is for the key
transport indicators to be used.
Infrastructure Costs
29.48. The Commission has proposed the inclusion of a factor to recognise
the higher infrastructure costs associated with rail based services. Implicit in
this approach is that costs of concessions per passenger increase as systems
become larger and move into rail based services. As has been demonstrated
this is not the case – concessions per passenger decline as systems become
larger.
29.49. Rail based systems have higher fixed (infrastructure) costs, however,
they are able to move larger numbers of passengers more efficiently and
more quickly. This is precisely what drives investment in such systems. The
benefits of such large scale operations are reflected in the lower net cost per
pasenger for large systems.
29.50. Accordingly, the ACT considers that an infrastructre cost factor is
not justified and should not be assessed.
Calculation of Category factor
29.51. The ACT is concerned that the method of calculating and combining
urban transit factors has not been done correctly. As stated above, the ACT
does not support the inclusion of disabilities for urbanisation and
infrastructure costs. The discussion below should not be taken to provide
support for these factors. The ACT wishes to point out that, if such factors
are to be included in the assessment, it should be done in a consistent and
correct manner.
29.52. Table 26 of the Urban Transit Discussion Paper presents the
calculation of the category factor. As with any assessment, the standard
used is the national average per capita amount. In this case it is the national
average per capita net expenditure or concession and other payments.
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Chapter 29 – Economic Activities - Urban Transit
29.53. Each factor as applied is therefore implicitly adjusting the standard per
capita amount. For example, the passenger use factor implies that the per
capita subsidy necessary for each state will increase or decrease in
proportion to the standard per capita subsidy according to the relative number
of passengers in each state. (As we have seen this is not the case.)
29.54. As other factors such as Service Level or urbanisation are applied,
they would normally be compounded with the passenger use factor. The
implication of this method is that, for urbanisation say, the standardised per
capita subsidy will increase (or decrease) by the relevant urbanisation factor
applied to the relative number of passengers (the passenger use factor).
That is, the subsequent factors implicitly provide for a relative urbanisation
cost per passenger.
29.55. However, the urbanisation factor was calculated on a per capita basis
(using urban population). Given that there are substantial differences in the
propensity to use urban transit across the cities, this means that the relative
urbanisation costs per passenger can differ markedly from the relative
urbanisation costs per capita.
29.56. The ACT considers that the appropriate way to derive the
urbanisation factor is to use the same passenger numbers in the
denominator as used in deriving the passenger use factor. A similar
argument applies to the factors for service level and infrastructure
costs.
Component Weightings
29.57. While the ACT recognises that it is difficult to establish the
appropriate component weights, it believes that the current assessment
is biased towards States with larger urban transit systems.
29.58. Concessional subsidies are usually based on a percentage of the
standard fare. Non-concessional subsidies relate to the shortfall in operations
after deducting fares and concessional subsidies.
29.59. As has been shown earlier, the net expenditure per passenger
increases as the size of the urban transit task reduces. This is in part due to
lower propensities to use urban transit in smaller cities. As a result, the
proportion of expenditure on concessional subsidies will be lower for smaller
systems and conversely, the proportion of expenditure on non-concessional
subsidies will be larger.
29.60. This impact is clearly demonstrated by the concession use factor,
which shows the relative concession use per capita for each state. This
factor is much higher for the larger cities than the smaller cities. Further
evidence of this effect can be seen when NSW and ACT figures on
proportions of concession and non-concession subsidies are compared.
29.61. Table 25 of the Urban Transit Discussion Paper shows that proportion
of concessional expenditure for NSW is 55.5% compared with the ACT’s
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Chapter 29 – Economic Activities - Urban Transit
30%. The adoption of the NSW weighting for the assessment components
would bias the results in favour of the larger states. The ACT suggests that
more work needs to be done on this aspect of the assessment to strike a
standard proportion. In the absence of further information a simple average
of the NSW and ACT proportions should be used.
Passenger Use Factor
29.62. The ACT is concerned that the current passenger use model
incorrectly measures States’ propensities to travel:

NSW’ propensity to travel looks overly high when compared to other
benchmarks; and

the model is predicated on potential passenger use rather than
actual passenger use.
29.63. The ACT is concerned that the proposed assessment will directly
utilise the 1999 Review propensity to travel model. The ACT, like the majority
of States, believes that the current model has a range of shortcomings that
should be addressed. The more technical concerns have been documented
by the Territory in the past.
29.64. The ACT is particularly concerned that the results emanating from the
current propensity model overestimate the needs of NSW. This appears to
be the case when comparisons are made with a range of other propensity
benchmarks, such as per capita boardings and per capita journeys. The
importance of these data sets as benchmarks cannot be underestimated, as
they are the industry measurement standards at both a national and
international level. Table 29.5 compares 1996-97 boarding and journey data.
This data suggests that NSW propensities are consideralbly lower than used
in the proposed assessment.
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Chapter 29 – Economic Activities - Urban Transit
TABLE 29.5 – PROPENSITY TO USE PUBLIC TRANSPORT
Urban Population (000s)
(a)
NSW
Vic
Qld
3646.2
2833 1712.9
WA
SA
Tas
ACT
998.5
899
178
269.6
NT
Aust
60.5
9784
Boardings (millions)
(b)
503.1
320.3
95.7
79
58.5
7.9
17.9
Journeys (millions)
(c)
440.5
273.4
82.3
56.8
43.5
7.1
11.6
3
918.2
Boardings per capita
(d = b/a)
138.0
113.1
55.9
79.1
65.1
44.4
66.4
56.2
111.0
1.24
1.02
0.50
0.71
0.59
0.40
0.60
0.51
1.00
120.8
96.5
48.0
56.9
48.4
39.9
43.0
49.6
93.8
1.29
1.03
0.51
0.61
0.52
0.43
0.46
0.53
1.00
Ratio
Journeys per capita
(e = c/a)
Ratio
3.4 1085.8
(a) Commonwealth Grants Commission, Discussion Paper 2001/10, Table 11, page 24. Urban
population in centres over 50,000.
(b) Commonwealth Grants Commission, 1999 Review Working Papers, Volume 5, Table 3,
page 182.
(c) Commonwealth Grants Commission, 1999 Review Working Papers, Volume 5, Table 3,
page 182
Scale Affected Expenditure
29.65. The ACT supports a differential assessment being applied to the
costs of administering subsidy payments as it is a direct, ongoing cost
associated with the delivery of subsidies.
29.66. The assessment of administrative scale and input costs
associated with the administration of subsidies would be entirely
consistent with the Commission’s view of assessing all non-policy cost
factors affecting subsidy payments.
29.67. The Commission states that “..the costs of administering subsidy
payments also needs further consideration”. 5
29.68. The ACT submits that it faces higher per capita costs associated with
the administration of subsidy payment relative to the majority of States.
These costs can be summarised as relating to two scale effects:

5
diseconomies of small scale – the need to provide the full range of head
office/administrative services related to subsidy and concession provision
which are inherent in the provision of urban transit services, with the cost
being borne by a relatively small population relative to most other cities;
and
Commonwealth Grants Commission, Discussion Paper 2001/10, Urban Transit A Proposed
Assessment for the 2004 Review, page 17.
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Chapter 29 – Economic Activities - Urban Transit

input costs – the above standard wages and salary costs faced by the
ACT in providing the relevant head office/administrative services.
29.69. Clearly, the associated head office costs are similar across all States.
The major difference is that the per capita cost for each States varies given
the size of the population bearing the administrative functions.
29.70. Examples of the administrative functions carried out by the ACT’s
concessions area include:

monitoring of concessional groups;

policy development in terms of changes to the concession framework;

contract negotiations with service providers;

negotiation with the Commonwealth about additional subsidy groups;

liaison with various federal and other state departments;

financial reporting to ACT Treasury on expenditure; and

administering subsidies.
29.71. The exclusion of administrative disabilities associated with subsidy and
concession provision, on the basis that the 1999 Review COP assessments
did not incorporate these types of costs, is unreasonable as the proposed
assessment is a hybrid rather than a strict COP approach.
29.72. Further, the ACT notes that the Commission, in its Discussion Paper,
CGC 2001/18 ‘An assessment approach to concessions and other
Community Service Obligations’, intends to assess scale affected costs for
categories including:

Economic Activities – Electricity and Gas;

Economic Activities
Environment; and

Non-urban Transport.
–
Water,
Sanitation
and
Protection
of
the
National Capital Influences
29.73. The ACT supports the Commission’s view that various
Commonwealth policies impact upon the level of subsidy required to be
paid to the urban transit provider.
29.74. Although all States may face the effect of lost revenues emanating
from various policy influences on parking put in place by Municipal
Governments (including Canberra), the ACT is the only jurisdiction to
fact the unique effects of the Commonwealth’s pay parking policies on
urban transit revenues.
ACT Main Submission to the 2004 Review
624
Chapter 29 – Economic Activities - Urban Transit
29.75. The ACT believes that an allowance of $1.5m per annum
underestimates the full cost impact of the Commonwealth’s policies.
29.76. As part of its 1999 Review urban transit assessment method, the
Commission assessed a national capital factor that reflected the impact of the
Commonwealth’s pay parking policy (which resulted in free and/or relatively
cheap parking operations throughout Canberra) on ACTION’s operations.
This was necessary as the parking policy significantly reduced bus patronage.
29.77. The ACT notes in this regard that the consensus of the States at the
14 September 2001 urban transit conference was support for the assessment
of a national capital influence.
29.78. Clearly, the Commission’s approach is reasonable given that the
losses of pay parking revenue associated from the Commonwealth
Government’s pay paring policies is higher in per capita terms than for any
other State given the amount of car parking facilities provided, and their
location, relative to other State capital cities.
29.79. The Commission notes that an allowance of approximately $1.5m p.a.
would be appropriate if a similar effect on the level of subsidy is applicable
and has questioned whether the situation in the ACT would necessarily lead
to a greater subsidy.
29.80. While the ACT does not necessarily contend that moving to a COP
approach would result in a greater subsidy requirement, the Territory does
believe that an allowance of $1.5m per annum underestimates the full cost
impact of the Commonwealth’s policies.
29.81. ACTION estimates that the number of full fare paying passengers
could be increased by as much as 20% if pay parking was introduced on
Commonwealth land in the ACT. The Territory believes that this equates
to $2.8m in lost fare revenue annually and as a consequence this flows
through to a larger subsidy requirement.
29.82. The ACT requests an increase in the National Capital Allowance to
$2.8m per annum.
ACT Main Submission to the 2004 Review
625
Chapter 29 – Economic Activities - Urban Transit
ACT Main Submission to the 2004 Review
626