Thursday, March 05, 2009

The Standard talks nonsense on rail and roads

Just when you thought Frogblog was the leading source of reality evasion on transport, I find I have new respect for Frogblog and that the Standard deserves the prefix "sub" that NotPC rightfully gave it last year. Frogblog recently posted on Kiwirail evidence that contradicts the Green view on things, it gave a flimsy rebuttal, but still all credit to actually looking at broader evidence.

The Standard on the other hands is the repositary of complete ignorance on the topic.

The latest post has Steve Pierson saying of Kiwirail (in a post about ACC, more on that later):

"even if it’s true in the sense that it won’t give any profit to government as a going concern, and will require the Government to put in more money, so what?"

So what? Yes Steve, taxpayers should bend over and let the government shaft them up their fundament right? An unprofitable business is no big deal to the Standard. Then again, the history of NZR in its various guises in my lifetime under state ownership was to be unprofitable from 1970 to 1982, when it was bailed out, profitable for 2 years (after contracted subsidised services), then unprofitable from 1985 to 1990, when it was bailed out again, and profitable for three years before being sold.

Then he says:

"If that were the criteria for whether owning an asset is worthwhile, we should get rid of the state highway system for a start - it costs the Government over a billion a year and there’s nearly nil revenue."

Nearly nil revenue? The government is forecast to receive $897 million from Road User Charges and nearly $1.9 billion from fuel tax (adding the $600 million currently diverted as Crown Revenue then recycled back to transport) from using all roads in the current year. 50% of vehicle kilometres travelled are on the state highway network. So around $1.4 billion a year of revenue is nearly nil?

Oh and the planned expenditure on the state highway network in the current year is $1.26 billion, of which 63% is on capital improvements.

The state highway system raises enough revenue to pay for its ongoing maintenance, with sufficient surplus that it can be used to improve the network, and there is over $100 million on top of that revenue used elsewhere (subsidising public transport).

Then we have mysticism dressed as economics:

"It’s the externalities that matter. Having a working rail system, liking a working road system, allows the economy to work much better than it otherwise could. That produces tremendous wealth, even though it doesn’t show up on Kiwirail’s balance sheet."

Externalities? Yet when the Surface Transport Cost and Charges study dug down into the marginal costs of road vs rail freight, the differences between modes varied considerably. In two out of three cases, road user charges revenue paid were in excess of all externalities, in the other case it fell short. So it is NOT cut and dry.

However, this nonsense about it producing "tremendous wealth" is pure mysticism.

Let's see the wealth creation from Labour and the railway system:
- $665 million to buy a company that couldn't pay its bills (track access charges), when its market valuation was around two-thirds of that;
- That same company needs hundreds of millions of dollars to just keep doing business over the medium term, and wont generate a profit from that.

The Standard has been a cheerleader for the rail religion for some time. It described renationalisation as such:

"The Government has acted in a way that makes economic and environmental sense. The only opposition has been from the ‘free market is always right’ lobby and National. Their childish comments about buying a train-set have fooled no-one."

Childish? Using analysis which the government itself commissioned from consultants?

Steve Pierson before that talked absolute drivel suggesting enormous demand for Kiwirail:

"Businesses are keen to take more freight off the road in the face of skyrocketing fuel prices and long-distance car travel is also getting out of reach for many; KiwiRail will provide an alternative."

Which businesses? Who is thinking of dumping their car for long distance passenger rail?

You see, the subStandard thinks it is about ideology not evidence:

"The only reason I can think of is that National/ACT doesn’t like KiwiRail and insulation because they were the Left’s iniatives. There is certainly no pragmatic reason to drop them. From both an environmental and economic stand-point investing in rail and warmer homes are the best options."

None Steve? When nobody has done a study on the economic or environmental benefits of subsidising rail? When a government pays well over the odds to buy an unprofitable business?

Dare I suggest the Standard has superseded Frogblog in abandoning evidence and preaching the religious mantra "rail must be good" - a faith based initiative if ever there was one.


Andrew said...

Couldn't have said it better myself! well done.

Anonymous said...

Which businesses? Who is thinking of dumping their car for long distance passenger rail?

I for one would have dumped my rental car when visiting your country again last year. I've found flying Christchurch to Dunedin a pain, especially the distance and cab fare from Dunedin Airport. My Rental car was about price equivalent with air + cab. BUT - There was NO bloody train which would have dropped me virtually in the middle of Dunedin and allow me to relax along the way especially with a beer or two.
Yet your railways seem to have trains out of Dunedin and Christchurch going everywhere but not to each other!

Anonymous said...

The big issue is port rationalisation leading to larger ships calling NZ which leads to lower freight rates for our exporters and importers- this cannot be done without rail, annual benefit to NZ estimated 2-3billion- thats why we need a working rail system- not neccesarily the 4,000km network we have today - running long distance interisland trains in competition with road is madness and this is where rails loses millions and millions a year, there are areas where rail is the logical choice both now and into the future, investment should be targeted in these areas to mainatinand expaqnd capacity the other routes eitehr mothballed or wound down

the govt could get its acclaimed cycleway of to a great start by closing the lines north of auckland and converting to a cycle path as in central otago, sames goes for napier gisborne what could the tourist sector do with those opportunities- these two lines will never ever have enough freight to justify retaining the lines so cut and run now and redeploy the assets in areas where rail does have a future

anon said...

Your title is not quite correct. It should be
"The Standard talks nonsense"

Anonymous said...

Your entire argument falls over when you consider the simple fact that road transport externalizes many costs that rail is required to internalize. There is no level playing field.

A very comprehensive government study a few years ago determined that rail pays 82% of the costs that it imposes on New Zealand society, while road pays 56% of its costs.

The taxpayer will therefore get more bang for their buck if greater investment is made in rail.

libertyscott said...

Anonymous 1: The Christchurch-Dunedin train carried on average 50 people per trip when it was cancelled, and a feasibility study carried out in 2001 found that some heroic assumptions about tourism would be needed to make it work. There are several bus and shuttle operators on the route, some of which operate services faster than trains can go. NZR declared many years ago that long distance passenger rail consistently needs the equivalent of 3 bus loads on average each trip to be economically viable. The Southerner managed less than 2.

Anonymous 2: Agree

Anonymous 3: Often yes (but occasionally I agree with the Standard)

Anonymous 4: You mean the Surface Transport Costs and Charges Study which you should search my blog for multiple references about. Even setting aside the significant changes since that study was done (e.g. rail nationalisation, increases to RUC, subsidies for rail infrastructure), there are significant flaws in taking such a simplistic approach to the study results. E.g. expecting a rate of return on what are sunk assets for roads is ludicrous, monetising noise which is internalised in property values.

You completely ignore the marginal cost case studies by route of rail vs road freight which tell a quite different story.

Happy to debate what that study means in detail as I know it in detail.

Anonymous said...

Re Anonymous 1

Mr Scott, I'm sure that a bus could be caught between the 2 cities. Sometimes visiting China on business I have been forced to catch the same. I feel each time like I have been through a wringer. Bus isn't a digestable option, thanks anyway. Buses - even nice ones in lieu of trains? They seem imply 3rd world country. I'm getting the idea about your country's status. I came across your site by chance, will let you get back to politics with the others now - thanks

libertyscott said...

Well latest anonymous, the new Intercity double decker coaches are hardly that bad. Of course people catch coaches all over the UK and Europe as well, because trains don't go everywhere and are always more expensive than buses.

If you aren't prepared to pay a train fare that covers the cost of your train travel or there aren't enough people travelling at the same time to justify the capital cost in putting on a train service, why should NZ taxpayers subsidise you? Frankly on that route, I'd drive, there are umpteen rental car firms, and it is typically cheaper and quicker to drive especially if there are two or more people.

Bryan Spondre said...

Subsiding public transport is ideological stupidity.

I recently took a bus for the first time from Ponsonby to the new Constellation Drive transport hub. I caught it at peak time (5:30pm ish) but the bus was only 15% full. The trip cost me $4 directly, I shudder to think how much it cost me indirectly in fuel taxes,income tax, property taxes.

The left love public transport because it is a form of income transfer they can claim to be environmentally responsible. It gives them a warm fluffy feeling inside. I would rather have the cold,hard cash in my pocket.

Clinton Smith is an ideological dolt or idiot for short.

jimmyratso said...

People who champion rail forget that you still need a road fleet to move goods from whatever central transport hub you use to the end user. Unless every business in New Zealand has a train station at their door, rail is an incomplete solution.

Great post LS.

What would Hayek say said...

Great post LS, agree with all your comments on rail v road and in particular your points about the surface transport costs and charges study. I doubt few people have read that study but clearly you have (I think the total group would be about 12 people, of which 2 would be the authors, there was a very small number of review people, and otherwise there was a couple of interested transport analysts, but very few other readers), general commentators I suspect just looked at the media release and carry on with there existing prejudice.

libertyscott said...

What would Hayek say:

Yes, it helps I know two of the authors too ;) though I do not speak for them.

Anonymous said...

two points - you only need road fleet for door to rail moves and rail can eliminate significant VTKM's, who wants to see hundreds of trucks parked outside PoA's gates when big ships start calling when those containers can be moved by rail to inland ports, and dont say they can go direct because 99% of exporters and importers are not available to handle containers 24x7 so a second truck move is almost always required.

I also have also read the full STCC document and whilst flawed in some areas its main theme I believe is valid that road freight does not cover its full cost however calculated. The nationalisation of ONTRACK enables to some extent the playing field to be levelled but do not confuse that with a subsidy.