Rail should not have to operate commercially while road does not; rail efficiency improvements may be illusions; real yardstick must be suppression of road traffic growth.


Balance Research made this follow-up submission to Australia's Productivity Commission in May 1999, in response to their Draft Report. The Commission's enquiry was into "Progress in Rail Reform".






Balance Research

P.O. BOX 555, FOOTSCRAY, VICTORIA 3011 (03)9689 7555
21 May 1999





In its Draft Report, the Commission is acknowledging the need to 
have road and rail competing in the market on a fair basis. It is 
calling for full cost recovery from road users, or at least some 
of them.

     But it is silent on the means, or the need, to correct the 
     distorted market while waiting for full cost recovery.

Improved Efficiency

The report credits the railway industry with improvements in 
efficient operations. The reduced costs per unit task is not 
disputed, of course.

     The report does not however examine the extent to which 
     these improvements are due to shedding of less profitable 
     tasks and whether these tasks, now on road, use more 
     resources than before.

The Yardstick of Success

In considering the future of the railway industry, the yardstick 
seems to be whether the industry will be commercially successful.

     The opportunity was not taken to consider the alternative 
     measure of railway policy, namely success in controlling 
     the growth rate of road traffic.

Tax Reform and Transport Resources

The report considers the effect of proposed tax reform including 
reductions in taxes on diesel fuel. It records likely reductions 
in operating expenses for rail and road.

     These reductions would be expected to increase total demand 
     for transport and also to induce a further swing from rail 
     to road. Alternatives could be devised which might avoid 
     these effects while still achieving the government's aim of 
     helping rural business.




The main thrust of the Draft Report, in regard to future 
directions, seems to be that the road industry should move 
towards user charging with the result that both road and rail 
would operate commercially.

In terms of the need to reduce the resources used by transport, 
such an outcome would be very welcome. That is to say, the 
elimination of all subsidies to transport would effect a 
substantial modal shift to rail and it would also lower the 
demand all for transport. The effect on resources demanded for 
transport would thus be a significant reduction, which would be 
good news for the community's wellbeing.

The limitation of this approach is that it may take many years to 
have effect and it is doubtful whether governments would ever be 
willing to collect from road users the totality of subsidies.

Elimination of all subsidies is but one permutation of the notion 
of equalising subsidies.

The submission of Balance Research was that while effective road 
usage charges are not in place, rail usage should be subsidised 
to remove the market distortion. As governments introduce RUC's, 
subsidies to road and rail would decrease in unison. In the 
submission it was argued that funds spent on equalisation of 
subsidies would be less than the savings in road-related costs.

The necessary precursor to subsidy equalisation is a study of all 
subsidies, overt and hidden, cash and non-cash, by governments 
and by the wider community.

The question of equalising subsidies is one of allocative 
efficiency and of choosing whether to continue favouring a 
particular mode. This is doubly important if the mode presently 
being favoured is the one which uses more resources per unit of

The question of whether there should be any subsidies at all is 
more political than economic. Cheaper transport has benefits 
socially and industrially and for this reason it may be unwise to 
rely on governments exacting substantial charges on road users as 
a means of redressing the imbalance in subsidies.


Improved Efficiency:


It is also noticeable that the rail industry is credited with 
having become more efficient in recent years. Balance Research 
does not dispute that the resources used per unit of railway task 
have decreased, indicating an improved technical efficiency. 
However over this time the composition of the rail task has 
changed, with vast increases in bulk tonnages and some decreases 
in general cargo.

In order to assess the potential benefits and resource savings of 
policies which might transfer tasks from road to rail we must 
confine our gaze to those tasks which are contestable as between 
road and rail.

And in that arena, railway operations have become more efficient 
mainly by shedding tasks which were less profitable. These tasks 
have gone to road in which they use up more resources than on 
rail but have the appearance of efficiency.



The Major Economic Challenge

Balance Research believes that the greatest challenge for the 
transport and economic communities is to chart a course which 
will avoid the major expansion in transport-related resource 
usage which under present policies seems inevitable.

It seems to be widely accepted that the total transport task will 
continue to grow more-or-less in line with economic development.

That total activity and presumably total transport task will 
eventually double is not widely disputed. Just the time-frame for 
the doubling is open for debate. For example, elimination or 
reduction of transport subsidies will downgrade the link between 
economic growth and transport task growth. Debates over the 
nation's target population widen the range of the time-frame. 
Long-range outcomes for major mining projects are capable of 
greatly influencing the eventual date of doubling.

It is a useful exercise to remove from consideration of the 
growth rate of transport any significant tasks of a kind which 
are never likely to use the highway system. These are mainly mine 
output flows which use shipping or rail.

While the rest of economic activity continues to expand, it is 
possible that mine output will not. A decline in mine output 
could entirely mask a pattern of continuing growth in general 
transport. The result of that could be that while more and more 
traffic is demanding more road space in most parts of the 
country, aggregated statistics could show that there is no 
problem because the total transport task is not growing.

Doubling Again?

It is also possible that the total task will double again so 
reaching four times its present level. Again this will be 
influenced by eventualities in population, transport subsidies, 
including or excluding mining flows, and economic conditions.

Despite reservations, it is probably safe to act on the 
assumption that having doubled, the growth of demand for general 
transport will continue at some rate and may eventually reach 
four times.

Inter-Generational Equity

On continuation of policies as now envisaged, most commentators 
would seem to be quite content if rail maintains its overall 
share of passenger and general freight tasks.

If this comes to pass, future generations will feel the impact of 
four times the car and truck traffic.

To cater for this, highways will need to grow substantially in 
country and populated areas. Injury and death from road traffic 
will continue to grow despite improvements in the statistical 
rates. And land which could have been retained for railway use 
will in many cases have become alienated, making it extremely 
costly to engineer a solution.

Depletion of oil and gas is also a matter of inter-generational 

Within the 20th century we have used mp most of the accessible 
deposits laid down over billions of years. We are largely 
ignoring opportunities to convert transport to other sources of 
energy, and are using oil and gas at a faster rate each year. 
When these useful fuels become scarce, our successors will not 
thank us for using it up so quickly without thought for them.

Federal Issues

The Commonwealth should play the lead role in this reform. That's 
not to say they should pay out all the money. Their role would 
be to lead, persuade and facilitate.

Reform of something so fundamental as road and rail must be the 
work of all three levels. A study of government involvement with 
transport must cover all governments and all departments.

The outlay by all governments of one dollar to facilitate subsidy 
equalisation will lead to a benefit of perhaps two dollars. The 
Commonwealth's contribution may be in the nature of a catalyst.

The Challenge for Railways

For road traffic to grow less than now contemplated, rail must do 
more, much more, than maintain its percentage of the transport 
task. However efficient the industry may become, it will not 
increase its overall share of general transport while the market 
remains distorted.

It is a credit to the innate efficiency of rail that despite the 
distorted market it can provide, for example, intercapital 
transport at prices competitive with road and require just a very 
small subsidy ... far less than the unquestioned subsidies to 

Railway Viability vs. Transport Efficiency

A number of commentators have couched their views on the future 
for railways in terms of whether the railway industry will be 
viable. Will there be a place for rail, and can it expect to 
attract sufficient traffic to make it commercially worthwhile?

Balance Research offers the opinion that these are not the 
critical questions when considering the future needs of the 
nation for efficient transportation.

The critical question is whether rail-based solutions can be 
found which will lead travellers and shippers to choose not to 
use the highway. If so, the growth of highway traffic can be 
controlled and the long-term outlook for resources improved.

Solutions must include not only the technical improvement in 
efficiency but the correction of market signals accompanied by 
changes in attitude.

The attitudes of travellers and shippers, governments and 
academics, and providers of transport services are not well-tuned 
to a major swing from road to rail. Many accept that there should 
be some change but are only expecting marginal growth.

Privatisation, level playing fields, harmonisation of systems, 
one-stop negotiations, with improved technology and management, 
will all make rail's future more certain. But these will count 
for little in economic outcomes if not accompanied by changed 

Balance Research believes that with the right signals and the 
right attitudes, substantial changes are feasible which would 
save governments and the wider community from the ever increasing 
costs, losses and resource drain which they will otherwise face 
from transport.


The Arithmetic of Trans-Modal Growth

To study the kind of rail growth that may be needed in decades to 
come, an informative exercise is to see what rail system growth 
is required if the nation decides to reduce road traffic growth 
to zero, that is to keep road traffic at its present (say year 
2000) level by improving rail-based services.

Future traffic task is assumed to reach four times its present 
level in the year "X4".

Example A

A corridor where rail presently carries 50% of the task:

Year 2000: total task 100 units

     Rail task     50 units
     Highway task  50 units

Year "X4": total task 400 units

     Rail task    350 units
     Road task     50 units

Thus rail traffic needs to grow seven-fold to absorb the 
increasing task without expanding the road system.

Example B

A corridor where rail presently carries 20% of the task:

Year 2000: total task 100 units

     Rail task     20 units
     Highway task  80 units

Year "X4": total task 400 units

     Rail task    320 units
     Road task     80 units

Thus rail traffic needs to grow sixteen-fold to absorb the 
increasing task without expanding the road system.

Example C

A corridor where there is no rail traffic at present:

Year 2000: total task 100 units

     Rail task      0 units
     Highway task 100 units

Year "X4": total task 400 units

     Rail task    300 units
     Road task    100 units

Thus rail traffic needs to be established and carry three times 
the present road traffic task.

Of course it is not certain that rail could totally absorb all 
task growth, but if governments made it their aim to do so, these 
examples indicate the implied scope of rail development.

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