A bit of work I’ve been doing for some time is trying to replicate on of my colleagues’ work on transport expenditure, published in Development Southern Africa (open access version here). In the porocess of doing so, a few interesting notes emerged that were part of the whole bus strike issue and fuel price narratives from previous blogs. By income quintile, low income earning households spend from 11% of their income on road transport, while the highest income households spend between 2.3% to no more than 0.5%. Rail transport expenditure ranges from 0.3% to 0.1% from lowest to highest income households.
Motorcar expenditures range from the middle income household groups with 0.1% of their income to nearly 11.7% of the highest income’s expenditures leaning on private cars. With fuel expenses rising as income rises. While transport expenditure by race ranges between 15.1% to 17.2% from White households to Black households, the absolute incomes range from R 53 000 to R 12 000 per household per year is spent on transport, respectively. What is interesting is to take note that for every 18000 households transport expenditure on cars is R 270 000 000, while for public transport households are spending nearly R 89 000 000 in 2015.
Many commentators talk about “ring-fencing”, but until we’re actually inside the machinery of Treasury it is rather difficult to even argue that because public sector priorities are not efficient in the positive economic sense, only in the normative sense where welfare is quite important and almost immeasurable to many.Keep reading.
Inflate that up to the total number of households in South Africa (my current research) and we have a problem where we must ask: what should be our reality and what is the reality. In normative economics the concern is what “ought to be”, what we wish the situation really was and the representation of the welfare gains in a rather subjective way. Whereas, positive economics is concerned with “what actually is taking place” measured, tested and evaluated beyond the political economic models, but right on the ground where it matters most.
Ringfencing taxation parcel in Treasury’s gate
All these private vehicle expenditures are part and parcel of a tax economy which is used to fuel much of the public spending we see today. One of the biggest economic problems is that each income quintile must get the value of its buck— higher tax revenues from higher income households do not necessarily result in equivalent returns in terms of public expenditure. This is referred to as the cost of public funds. How much does your R1 of income tax and value added tax (VAT), fuel levy, carbon tax and other taxes do you get back?
This is largely due to the extent to which the skills and talent in our economy has the room to participate and engage actively in employment generating activities. On the other hand, it has to do with the extent to which capital is allocated toward specific activities, functions and purposes.
For instance, the South African Road Federation (SARF) published a report which outlines where the fuel levy actually goes. It does not come back to the road users directly, but instead, it travels around the budgetary lines and weaves its way to State Owned Enterprises instead. Many commentators talk about “ring-fencing”, but until we’re actually inside the machinery of Treasury it is rather difficult to even argue that because public sector priorities are not efficient in the positive economic sense, only in the normative sense where welfare is quite important and almost immeasurable to many.
Then again, only a small share of households actually account for the number of private cars on our roads— but it is these private cars and their mobility that seems to have propelled our economy since the advent of the combustion engine and road infrastructure. I’ll always take you back to the Malcolm Mitchell’s series in Civil Engineering, where he outlines the historical role of technology, public funding, transport planning and the complexity of infrastructure projects in SA against the backdrop of political economic inefficiencies derived from segregated planning.
While there is every hope of solving the problem it is obvious that the authorities concerend will have to do a lot of very bold, hard and clear thinking; considerably greater share of road user taxation will have to be devolted to urban road problems and vested interestes will have to accept the inevitable changes in the pattern of urban life which the modern revolution of motor transoort is bringing about. Finally, the individual citizen will have to realise that, in spite of all that engineering can do, his own restraint, cooperation and self-desciple are essential if he- or she- is to enjoy the full benefits that motor transport can bring.”Dr Malcolm Mithcell, (2004). The first roads- building the foundation for a country-wide road network. Civil Engineering, pages 41-45.
According to Malcolm Mitchel, it is this potential tax revenue that car users are willing to pay for that disincentivized investments in rail transport infrastructure and induced much larger returns for public sector. This resulted in more incentives to invest in road transport infrastructure over rail transport infrastructure and public transport in general.
Budget Vote 35 allocations to road and rail
However, in my current research, I noticed that the allocations made to Passenger Rail Agency South Africa are disproportionally lower than what one may expect when compared to road infrastructure. From a public transport investment perspective, maybe it is worthwhile because of the affordability of road infrastructure and the short-term returns, but the long-term costs still remain (i.e congestion, maintenance and rapid deterioration of high quality infrastructure when over-utilised by freight vehicles).
On the other hand, the allocations toward transport planning, and other institutional activities are more reasonable, although the cost of consulting services is much higher than I expected. It does reveal how allocations toward efficient capacity building in municipalities is contracting, over allocating such funds to outsourcing the transport planning service. Big question here is: why don’t municipalities employ the technical expertise from consulting companies at a competitive salary in order to reap the long-term benefits of doing so. Municipalities and transport authorities that do this, effectively run at a surplus of both political complexity, technical expertise and project execution. However, sometimes these expertise focus on differentiating financial return and economic benefit, while the national conversation is largely based on welfare gains in a distributive sense over optimal allocations.
What should be and what is?
While national policy statements in the form of Budget speeches outline the trajectory and narrative underlying the allocations and the policies, there is much more to be said about the technical characteristics of policies related to mobility and access in South Africa. Internationally, these tensions are redressed in various ways, but for now, I’d rate the budget Vote 35 for transport a 4/10, largely because it has a vision, but lacks the depth and wealth of narrated context we need from leadership now more than ever. Perhaps what should be happening is that more people use public transport and this use brings in enough revenue, economic activity and well-being benefits to fuel our economy. However, what is happening is that the energy economy underlying combustion engines, and electric motors are at the heart of our economy right now. Through taxation, levies and the likes. How long could it take to change? As long as it takes to change how land is used and developed; how households choose to live; how transport infrastructure, services and systems are paid for; and where business, education and leisure choose to locate themselves. As an aside, it still seems too soon to scrap eTolls, and regulating road freight remains a dark unpaved road.