Story: Public transport

Page 7. Public transport funding

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Historically public transport has been privately owned, or provided by local authorities, which paid for tramways and bus services with loans and rates. Railways have been primarily run and funded by the government.

Local authorities were concerned with providing a service for the public good, rather than maximising profits. Tramways were introduced as a means to open up suburban areas and reduce inner-city congestion. As a result large debts were incurred developing and running rail and tramway systems, and many ran at a loss.

Private cars hit public transport

By the 1950s private motor car ownership was having a significant impact on public transport patronage. Between 1950 and 1964 the number of cars on New Zealand roads tripled, and the number of passengers using municipal transport services fell from 198 million to 127 million trips a year. Most local authorities faced significant ongoing losses.

There was a high degree of regulation of passenger transport services with little competition among operators, and few incentives for innovation or establishing new routes or services.

Government subsidies introduced

A government committee of inquiry was convened in 1969. It issued the Carter report in 1970 recommending central government subsidization of services, and policies to encourage the patronage of public transport.

There were many arguments supporting government subsidization, focusing on the public good. Subsidies to encourage and provide public transport would:

  • relieve traffic congestion
  • have positive benefits for the environment
  • ensure services for those who could not afford private transport.

Transport subsidy framework

The Carter Report led to the establishment of the Urban Passenger Transport Council, a government body to administer subsidies. Funds were allocated on a regional basis. Regional councils were also able to raise rates to fund services.

Funding was initially split equally between rail and all other transport services (generally buses), but later the ratio changed to favour bus services, which became the dominant form of public transport. In the early 2000s funding also specifically targeted paratransit services (services supporting the disabled).

From 1989 funding was allocated by Transit New Zealand. In 1996 the Land Transport Management Act transferred this function to Transfund New Zealand.

Public transport deregulated

Three pieces of legislation deregulated public transport, opening up the transport industry – including subsidised urban services – to competition.

These 1989 Acts were:

  • the Local Government Reform Act, under which local authorities had to make transport companies into standalone businesses, or sell them. Regional councils decided what public transport services were required and companies would tender to provide them.
  • the Transport Services Licensing Act, which abolished the licensing of specific routes.
  • the Transit New Zealand Act, which established a requirement for services receiving public funding to be subject to competitive pricing.

Petrol tax

Almost half of the price New Zealanders paid for petrol in 2000 was made up of government taxes and levies. About a third of this revenue was spent on roads, the Accident Compensation Corporation and other transport-related expenditure. Taxes related to road transport made up about 5% of the taxes the government collected.

In 1992 a regional petrol tax was introduced to compensate for gradual reductions in the level of direct government spending, allowing regions to raise funds for roading work. It was discontinued in 1996.

Transfund

In 1996 Transfund was established to separate the funding of transport services from the provision of roading services. Transit New Zealand had originally allocated transport funding, but its role changed to managing and operating the state highway system. In allocating resources, Transfund decides between the provision of public transport services and new roading.

Planning initiatives

In the early 2000s public transport planning initiatives were formalised in regional council documents, such as regional land transport strategies. These were aimed at increasing the number of public transport users and ensuring the effectiveness of funding. They promoted strategies such as increasing services, making it easier to get timetable information and providing better linkages between services.

How to cite this page:

Adrian Humphris, 'Public transport - Public transport funding', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/public-transport/page-7 (accessed 18 November 2019)

Story by Adrian Humphris, published 11 Mar 2010, reviewed & revised 11 Mar 2016