Can half-price public transport give a respite from current inflation?

Fee-Fi-Fo-Fum, I smell the blood of inflation. It’s no fairytale though, is it?

Right now, explaining inflation really is as simple as the four F’s; Fertiliser, Freight, Food and Fuel prices climbing the beanstalk to the thunderous soundtrack of Putin and the Pandemic.

We’re now in a predicament where we have to ride this global wave of price rise and accept that New Zealand government can’t stop the imported element of inflation infecting our economy.

They will, however, benefit from the tax-take from our export sector, riding the commodity wave in the other direction.

As UK inflation hit 7 per cent this week, one fine dining restaurant explained that wages were going up by 20% to 30% as fake customers watched and poached staff.

They even infiltrated outdoor staff smoking areas to make offers.

Wage pressure travels internationally and loss of quality offshore as well as skill shortages add to local price rises.

At times there’s brief relief – the Shanghai lockdown gave oil prices a breather, but, China’s zero--Covid policies caused supply shock and freight chaos.

War is now embedded in Europe, causing a bun fight for non-Russian resources, replacements for Ukrainian products not being grown or manufactured and food hoarding by producer countries.

All we can do locally is implement social and tax policies, to protect people under the most financial tension.

One of these is half-price public transport.

Of course, it’s generous and shouldn’t be sniffed at, but, it’s suddenly becoming thoroughly inadequate.

Temporary means gimmicky

Free public transport for all is the real fairytale policy that can give respite from the cost of living crisis.

We need action in a key area, in order to free up money for food, home heating and mortgage rises.

As of April 1, we have a 50 per cent discount on public transport fare, lasting until the end of June.

The Government is non-committal over any extension, and there lies the problem.

It’s a temporary policy, and inflation is no longer temporary. A well-intentioned policy already feels gimmicky.

We underestimated inflation. Our economists and banks are still underestimating it.

However, it is a global crisis, involving multiple supply shocks and has even more geo-political drivers with the Ukraine war.

The June deadline doesn’t have a fairytale ending for middle to low earners.

Free transport is the one area, where the Government can create a quick respite with low administration costs, and level-up the inequality inflation causes.

Human behaviour

Since the policy took effect, have you become a new user of bus or train transport?

Did your kids take the bus to school or did you still do the daily drop-off?

Sure, Auckland travel was up by 24 per cent and Dunedin by 8 per cent. But, these were from numbers decimated by work-from-home culture.

This is also at a time of Omicron fear subsiding. The discount does appear to give public transport a good nudge, but it’s fair to guess this uplift is caused by previous users returning.

The policy hasn’t got permanency, or a public campaign drive, to get into the financial minds of new users.

When it comes to personal finance, behaviours are embedded and sticky. Try to get people to switch bank accounts, KiwiSaver providers or energy companies to save money – you’ll realise it’s head-banging stuff.

That doesn’t mean they aren’t desperate to save a buck, it’s just very hard to change behaviour with a short-term policy and no creative public engagement. People need to visualise real dollar savings.

An economist would say don’t do it

Economic theory can be a frustrating beast.

When it comes to free public transport, the theory says, zero cost is irrational and creates “useless mobility”. That means you might go somewhere just because you can, not because of need.

It causes extra costs for local authorities.

Luxembourg was the first country in the world to offer free public transport for all citizens in 2020.

The situation in New Zealand is quite different. You can drive from one border to another in two hours, or you could take the same time to cross the capital city.

Stonia, the city of Tallinn introduced free transport and researchers pointed out that bus travel increased by 8 per cent while car journeys only declined by 3 per cent.

Apparently, walkers and cyclists jumped on board – which would not have pleased the local health authority.

Therefore, mode of transport does not appear to correlate with prices.

The mood towards public transport has changed

Living in an inflationary environment changes everything for consumers.

Economic theory about “useless mobility” doesn’t look so convincing in 2022 as emissions, inequality and fuel poverty make it pale.

In New Zealand, a policy would make an enormous difference to people’s capability in withstanding the imported inflation that we have no control over.

Let’s hope that there will be a fairytale announcement of free public transport in the budget.

The ill-gotten gains of the inflation giant need to be rebalanced. For Michael Wood, that means shimmying down the beanstalk with a decent pot of gold for consumers.

Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. She is a financial commentator with expertise in banking, personal finance and funds management.