Draft Public Transport Subsidy Policy throws cat among pigeons!

Against the backdrop of a high fiscal deficit and rising debt burden, it is essential that the South African government uses its existing resources effectively in the fight against poverty and inequality. So said the World Bank back in November 2014. Sharmini Naidoo notes that this statement is still valid some 10 years later.

By taxing the income of the rich proportionally more than the poor, and then using social spending to boost the incomes of the poorest more than 10-fold, fiscal policy narrows the income gap between the rich and poor. Through mechanisms such as social grants, government strives to improve standards of living by redistributing wealth in order to create a more equitable society. 

We could easily say that South Africa has a fairly well-established social welfare system, as a large proportion of socialspending goes towards social grants; according to GroundUp, more than 18 million monthly social grants were paid during 2017. Sections 24 to 29 of the Bill of Rights in the Constitution recognise the socioeconomic rights of citizens, including the right to social security. Government is thus obliged to progressively realise these rights, meaning that “the State must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of the right”. The Social Assistance Act of 2004 and regulations of the Act provide the legal framework for the administration of social grants. Grants are targeted at categories of people who are vulnerable to poverty and in need of State support, including older people, people with disabilities, and children.

Subsidies are also fiscal tools used by government to encourage economic development, help disadvantaged groups, or advance other national objectives, according to the International Monetary Fund. They can take many forms and can be utilised as incentives. Examples include the exemption of toll fees for electric vehicles in countries such as Norway; tax breaks to establish head offices in countries like Dubai and Singapore; or a simple reduction of costs to users, be it in university fees or bus and train tickets.

Subsidies are also used to achieve social objectives in addressing inequity, market imperfections, and supporting public transport. The use of subsidies in transport has typically been designed to correct spatial imbalances that result in inequity, as well as to increase the affordability of public transport to low-income persons and households.

Bus industry subsidies

It is common knowledge that, in South Africa, some bus operators receive subsidies from the government. Ticket fares are fixed and regulated by the contracting authority; operators are ”compensated” via the subsidy system. These subsidies therefore allow the operator to offer tickets at “below cost”.

Since 2009, subsidies have been paid to bus operators via the Public Transport Operations Grant (PTOG), as published annually in the Division of Revenue Act (DORA). This supplementary grant was supposed to be “topped up” by provinces from their provincial allocations to meet the relevant escalation formulas embedded in the interim, tendered, and negotiated contracts. As we know, however, this hasn’t quite materialised. Operators have been left with a shortfall in recoveries, as the PTOG was (and is) insufficient to cover rising costs. In fact, it contained de-escalations. This resulted in the industry having to absorb billions of rands in costs that it will never be able to recover.

Radical changes mooted

Regulations in the draft Public Transport Subsidy Policy (NPTSP) will radically change the bus industry… and not necessarily in a good way. The draft NPTSP was published on 23 February 2024 and comments were accepted for 30 days.

The NPTSP is proposing – amongst other things – a move away from modal subsidies to user subsidies in the form of user-targeted grants. So, if the draft policy is effected, operators will no longer receive PTOG subsidies but will be paid “a fee per kilometre to recover costs and generate a margin for operational viability”. Operators will be required to provide a minimum quality of service. All operators will be electronically monitored and may be paid a performance incentive when the number of passengers grows at a rate higher than the population rate of the area, according to paragraph 8.6 of the NPTSP. Whether operators will be able to recover any shortfall in costs has not been mentioned in the draft policy.

The draft subsidy policy has been in the making since the 2017 draft White Paper on National Transport Policy. The NPTSP assumes that 5% of GDP needs to be set aside to fund the new policy. To put this in perspective, South Africa’s GDP is about R4.6 trillion, meaning that R230 billion will have to be allocated, compared to the current amount of R35 billion. In light of the country’s debt and deficit crisis, it seems highly improbable that the State will be able to afford it.

Other principles included in the draft policy are as follows:

• Public transport subsidies will be implemented to achieve goals in transport plans which will be purpose-driven and transformative, developed in consultation with communities, and approved by the municipalities.
• Public transport subsidies will be managed by municipalities.
• The public transport subsidy budget will be appropriated to the municipalities from the National and Provincial Treasury.
• Fare structures will be set by the municipality in line with the approved transport plan.
• Public transport will be cost recovery-based. Hence, users will pay for public transport. The subsidy will cover the cost of the service above what is deemed affordable to users. However, the subsidy will be limited to what is affordable to the State.
• The public transport subsidy will consist of both operational and capital support.
• Direct user-targeted subsidies will be available to households that are considered poor – possibly through the South African Social Security Agency (SASSA) grant mechanism and eligibility criteria.
• Direct targeted subsidies will require a fare collection system which will be funded through the capital subsidy.
• Operating subsidies will be administered through information technology (in which government will invest) that will help identify travellers requiring subsidies. This will be linked to databases such as the population register, social development databases, and personal income tax databases.
• All the infrastructure and rolling stock (buses) that will be part of the subsidy system will be owned by the State.

SABOA believes strongly that current transport policies should be implemented to address the various challenges and shortcomings, instead of focusing only on the subsidy policy.

Power to the municipalities

The DPTSP places significant emphasis on the role of municipalities (even with their dismal track records) in developing transport plans and contract operators.

The association has raised serious concerns to the drafting committee about whether operators will be able to recover both operational and fixed costs, whether the contracts will be gross revenue or net cost contracts, and how any shortfall in the provision of the services will be recovered. The proposed government ownership of its assets and rolling stock, as well as the total cost of the proposed user-side subsidy system, are also major concerns and have been raised with the committee. SABOA’s complete comments are available from the SABOA offices.

Let’s hope our concerns are heeded…