'Material' miscalculation - economists identify apparent errors in Labour's transport policy

Labour leader Chris Hipkins said the party's fare cap policy, announced last week, would put money back into New Zealanders' pockets.

Photo: RNZ

Analysis - Labour appears to have underestimated the cost of its public transport fare cap policy, with economists identifying several apparent errors in the party's workings.

The opposition party last week estimated a net cost of $65 million a year for its promise to cap fares at $20 a week in Auckland, Wellington and Christchurch and $10 everywhere else.

But economists Sam Warburton and Brad Olsen say a more realistic figure would be somewhere between $91m and $112m.

The pair stress Labour's calculations seem to be a genuine and reasonable attempt to cost the policy, rather than a sign of incompetence or an effort to mislead voters.

In response, Labour told RNZ it stood by its calculations but also welcomed any prediction that public transport uptake would be higher as a result of its policy.

To date, Labour has declined to publish its full policy costings. It said it updated Auckland Transport (AT) modelling from 2023 to reflect current patronage, fares, and operating costs, before extrapolating the results nationwide.

Warburton was one of the economists who exposed a major shortfall in National's proposed foreign buyers tax during the last election campaign. Olsen is the chief executive and principal economist at consultancy Infometrics.

Where Labour's numbers look to fall short

Claim one: Labour has underestimated the increase in public transport use

Labour has repeatedly stated that AT's modelling assumed a 6.4 percent increase in public transport as the result of a $20 fare cap.

But the 6.4 percent figure reflects the cumulative increase over just five months, rather than a full year.

Warburton's reading of the Auckland Transport modelling suggests the equivalent annual increase would be about 13.5 percent.

That would mean significantly more passengers using public transport and a greater need for additional services.

Sam Warburton.

Photo: Supplied

Claim two: Labour has not accounted for drop in fuel tax revenue

Labour has claimed the gross cost of its fare cap would also be offset somewhat by an increase in revenue from the greater numbers of paying passengers.

Those sums would be collected by the transport operators, not the central government, but Labour said it would take that into account when negotiating funding arrangements.

Labour, however, does not appear to have accounted for a corresponding drop in fuel excise and road user charges as commuters switch from cars to public transport.

Warburton said, as such, a "clean and reasonable" approach would be to disregard the increase in revenue altogether, assuming that it would be counterbalanced by the drop in fuel excise and RUCs and by the cost of providing additional services.

Claim three: Labour has understated growth in patronage and fares since 2023

Labour said it updated AT's 2023 modelling to reflect current patronage and fares, but both economists believe it understated how much those figures have changed.

Both Warburton and Olsen point to a starting patronage level of about 70m trips in 2023.

AT has set a target of hitting 111.7m annual boardings in 2027/28, which would be a roughly 60 percent increase from 70 million.

To be fair to Labour, current trip levels are well behind that. Assuming a lower level of, say, 100m boardings would be an increase of 43 percent.

Labour has assumed an increase, but seemingly not by that much.

The same too for fare inflation. Since 2023, fares in Auckland have increased by around 17.5 percent.

Labour appears to have accounted for that, but not for an additional likely increase in the next year or two. Warburton predicted an additional 3 percent hike, while Olsen suggested another 5.1 percent - in line with last year's increase.

Taken together, those assumptions materially increase the cost of the policy.

Brad Olsen.

Photo: RNZ / Samuel Rillstone

"Not a huge miscalculation, but a material one" - economist

After adjusting for those factors - as well as several smaller ones - Warburton estimated an annual cost of between $91.4m and $111.6m, though noted there was still "considerable uncertainty" around the assumptions and method. Olsen concurred with Warburton's calculations.

Warburton told RNZ Labour would need to raise the cap to about $26 or $27 a week to bring the policy's cost closer to its stated $65m figure.

"It's not a huge miscalculation, but a material one, and one which I hope that Labour will take a look at and reconsider their policy settings around."

He said Labour's mistakes largely arose from a misreading of the original AT paper, which was "extremely difficult to follow".

"I originally set out to do my own costings and came up with almost identical numbers to Labour, until at the last minute a funky graph in the report caught my eye."

Warburton cautioned against over-reacting and said National's separate claim that the policy could cost as much as $1.6 billion was "utter nonsense" given total fare revenue for the whole country was just $0.3b per annum.

Olsen told RNZ Labour's errors were not massive, but they were "unhelpful" to its cause and could undermine the policy's legitimacy in the eyes of voters.

"It's frustrating that we've been spending so much time trying to recreate calculations based on bland statements from Labour, when the merits of the policy could have been debated instead, if only Labour had provided some detail about how they'd come up with their figures."

Olsen also suggested that more investment in the reliability and frequency of public transport would be a better use of taxpayers' money than a fare cap.

Labour: "We're confident in our workings"

Labour transport spokesperson Tangi Utikere.

Photo: RNZ / Angus Dreaver

In a statement, Labour transport spokesperson Tangi Utikere said all modelling required judgements and assumptions, including that done by Warburton and Olsen.

"We're confident in our workings, and in the capacity of the network. We'll work with councils in the lead up to July 1, 2027 and onwards to ensure services are resourced and up to scratch."

Utikere said a predicted 6 percent increase in public transport use was in line with the Transport Agency's findings that around 6 to 9 percent of New Zealanders used buses or trains in the previous week because of the half-price fares.

He said he welcomed any prediction that uptake would be higher than that: "We'd love to see more people on public transport."

But Warburton said Labour had also misinterpreted the NZTA research, noting that 6 to 9 percent more New Zealanders using public transport was a lot more than a 6 to 9 percent increase in public transport use.

He noted that public transport use was around 15 percent. Increasing that by 6 to 9 percentage points took it to between 21 percent and 24 percent.

In other words, half-price fares increased the percentage of people travelling by public transport at least once a week by about 50 percent, Warburton said.

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