“Privatise or perish” – The deregulation of Metro Tasmania

Introduction

Yesterday the Tasmanian Premier, Jeremy Rockliff, announced his intention to privatise public assets to curb increasing state debts, including public transport operator Metro Tasmania Pty Ltd. It appears that this announcement has a sense of history repeating itself.

In this essay, I explore the history of when the Metro authority became corporatised, and how the government last tried to privatise Metro.

History

The Metropolitan Transport Trust (MTT) had existed since 1954, and it was the largest provider of urban transport services in the state. The MTT was initially formed through the amalgamation of the Hobart and Launceston municipal transport systems, with Burnie added from the purchase of Norton Motors in 1959. Because of its amalgamated structure, representatives from the Hobart and Launceston councils sat on the board, and it wielded significant influence. The MTT was also legally and commercially independent from the Transport Commission, which ran the state’s railways, intrastate coaches and ferries.

Through the 1950s and 1960s, cars became more popular and affordable. This led to a reduction in public transport use as people turned to the ease and comfort of private vehicles. In the 1970s, oil crises and austerity measures changed approaches to public financing. Policy makers now expected loss-making services to start paying for themselves. The MTT had made profits in previous years, but costs had begun to increase. Rationalisation led to the state’s railways being sold to the Commonwealth in 1978, and MTT bus services being cut in the early 1980s to save money. Around this time the spread of urban development also started putting pressure on costs. In Hobart and Launceston, the MTT was respectively bound by a 22-kilometre and 12-kilometre radii from both cities’ general post offices, but they were now operating further to housing estates on the city fringes. The MTT were still receiving the benefits of supportive governments and ample investment.

There had been a lot of strategic leadership in the 1980s. The Springfield Interchange was opened in 1985. The MTT rebranded to ‘the Metro’, and a new ticketing system was introduced in 1988. There was also a large procurement of new buses during the late 1980s and early 1990s which reinforced government support for the service. Ansair buses were made at a purpose-built factory in Kingston to support local industry and jobs. New services were introduced including ‘Busy Bee’ and Metro eXpress, and Hobart and Glenorchy transit malls were opened. Even with these initiatives and increased investment the Metro was losing revenue and subsidies. By 1995 the Metro was a highly contested, often maligned discussion point in the media and parliament. The expectation that the community service of public transport needed to pay reflected government thinking for some time.

Competition reform

The Metropolitan Transport Trust was a statutory authority and a division of the Department of Roads and Transport. In 1990 the Tasmanian Government legislated the State Authorities Financial Management Act, which ruled how authorities were structured and paid taxes. This effectively meant the Metro was semi-corporatised, though it paid state taxes and was not subject to national corporate law. The Commonwealth had seen inefficiencies in the way state authorities were structured, which led them to review competition and market policy in the late 1980s and early 1990s with the aim of deregulation.

The deregulation of markets was a key policy agenda during the prime ministership of Paul Keating. In 1992, Keating called for a review on national competition policy. The subsequent Hilmer Report in 1993 shifted the attitude around public monopolies and encouraged deregulation. The states and the Commonwealth agreed to implement its recommendations. During the 1994 state estimates committee hearings, the management of Metro and the committee were not yet sure how competition rules were going to be implemented, or how they would affect Metro in the long term.

Because of these recommendations to increase commercial competitiveness, the Tasmanian Government passed legislation in 1995 creating Government Business Enterprises (GBEs). Statutory authorities such as the MTT and the Hydro-Electric Commission became liable under this act. They were now required to pay federal taxes, pay dividends to the state treasury, and be managed like a corporate entity.

The Burton Report

In late 1995 the Tasmanian Government commenced a review of public vehicle licensing. Former magistrate Peter Burton led the committee with a view to reform the Tasmanian transport sector, which included an analysis of public transport.

In a submission to the Burton committee in March 1996, the Bus Proprietors Association of Tasmania emphasised the need for reform of transport regulations. They were also concerned about any potential deregulation, and highlighted long term issues such as private monopolisation, lack of safety measures, and reduced or expensive services for Tasmanians. The submission was prepared by the consulting firm of future Tasmanian politician Guy Barnett.

This was followed by a submission from the Tasmanian Council of Social Service (TasCOSS) to the consumer affairs committee, which said if planned reforms to reduce Metro bus services on unprofitable routes went ahead, it would affect people who relied on those services the most.

Ongoing doubts about transport were raised by draft recommendations from the Burton Report. The Tasmanian School Bus Association raised safety concerns if periodical tendering was introduced for school bus contracts. Association president Bernard Manion made it clear that tendering would reduce incentives for preventative maintenance and fleet upgrades.

Political sentiment

The attitude of conservative members of parliament in the early 1990s was that the private sector could do a better job of running the Metro for less money. Metro had a deficit between $12 million and $13 million dollars a year according to the Labor government. The Liberals were vocal that Metro should be privatised and it operated with too much focus on Hobart. On the contrary, when the Liberals were returned to power in 1992, they debated the potential of privatisation but did not act upon it.

In the lead up to the February 1996 state election, fiscal management and cost-cutting was on the agenda. Incumbent Premier Ray Groom, as well as Labor opposition leader Michael Field, made promises that they would only govern if either party was elected in a majority. It was not to be the case, as the Liberals won 16 seats, Labor won 14 seats, and the Greens held the balance of power with their four seats. In keeping with his promise, Groom resigned from his position as Liberal leader, with Tony Rundle replacing him. Labor refused to do a deal with the Greens, and the Liberals under Rundle were able to gain their support. Rundle became premier, and the incumbent transport minister Sue Napier was replaced by John Cleary.

Higher fares for less services

With costs increasing, Metro chief executive Laurie Hansen announced that fares would rise from July 21^st by 10 to 30 cents, to help raise $1.1 million dollars in revenue. This was to support fuel costs, workers compensation, and increases in taxes and fees now that Metro was a GBE.

The Community and Public Sector Union (CPSU) announced that Metro and other government businesses were being asked to pay higher dividends to the government, increasing by as much as 50 per cent. There were also concerns that at least 300 public servants in various departments would be made redundant. The Rundle government soon handed down its budget, which aimed to find over $30 million in savings following the state’s loss of $19 million in federal funding. The budget confirmed public service cuts ahead of tax hikes, with whole departments getting restructured to find efficiencies. Health workers went on strike against any cuts to hospitals. At a time when divestment of state assets was being considered, Metro was asked to contribute more to state coffers. John Cleary clarified that Metro had the power to restructure its product to deliver efficiencies. Management were on notice to cut costs.

In August 1996, staff working at Metro leaked information to the Labor Party that the authority was planning major cuts to services only weeks after fares had been raised. The cuts were soon confirmed by Metro boss Laurie Hansen. Labor transport spokesperson Jim Bacon reported that the cuts included no night services after 7pm except on major corridors, a cut of Sunday services by 40 per cent in Hobart and 20 per cent in Launceston, and the loss of 20 staff. Bacon blamed the government for cutting Metro’s subsidy by $1.5 million dollars. He asked for an inquiry into Metro and opposed any service cuts, wanting them to be considered for their social impacts. The Greens were also vocal about their opposition to any cuts.

The newly elected Greens transport spokesperson Michael Foley called out the government for issues which were not yet obvious. He suggested that the government was planning to sell Metro and highlighted the need for an integrated system with light rail, ferries, and smaller buses. Foley believed that there should be a trial of expanded services to see if people would catch more public transport, though he did not agree with the inquiry that Labor was asking for. It appeared that both parties were aligned in their opposition of the service cuts, which was further opposed by the media.

The editor of The Mercury criticised the contradiction of service cuts and fare increases. They also blamed the government for trying to save money on social services that affected the community, and for poor land use planning from newly built isolated housing estates on the city fringe needing lengthy, costly bus routes to serve.

Community outcry

The service cuts were not only going to affect the broader community. One of the key issues with the service cuts was if it affected school children. John Cleary told parliament that no school services would be affected by the Metro review, but in September when they were introduced, a bus serving Glenorchy Primary School was cut. John Cleary was accused of lying to parliament by Jim Bacon. The school’s parents and friends’ association had to engage a private bus operator, and children were allowed to leave early to walk across Main Road to catch a regular service. A couple of days later, Metro reinstated the service following the outcry.

There was also a protest by Fern Tree residents affected by cuts. Night services were going to terminate at Strickland Avenue, forcing residents to have to walk up to four kilometres home. The service was given a week’s reprieve after thirty residents protested on the last bus home one night, and Metro CEO Laurie Hansen reassured that new timetables would be ready in coming weeks. Metro were waiting to see if complaints decreased before any changes were confirmed.

Metro fares investigation

The Government Prices Oversight Commission (GPOC) was about to start an investigation into Metro’s fares and services in September 1996. It would have been the second review conducted by the commission, following its first for the Hydro-Electric Commission. The commissioner, Andrew Reeves, would later go on to become the chair of the Australian Energy Regulator.

GPOC released its background report in October 1996 and predicted that Metro fares would likely increase in the new year. This was because of a gap between the fare price and actual cost of $1.27 in Hobart, $1.11 in Launceston, and 63 cents in Burnie.

The Commission reported that Metro had some of the lowest fares and highest government funding of any bus service in the country. 62 per cent of Metro’s revenue came from government funding, and less than 30 per cent from fares. Patronage had fallen by 2.9 per cent between 1990 and 1995, while bus kilometres had increased by 20 per cent. Full-paying adults made up 27 per cent of fares, while children/students and concessions made up 47 per cent and 26 per cent respectively.

GPOC gave its draft report on December 18^th. They recommended two options – a 25 per cent increase for peak fares in Hobart, or a 10 per cent increase across the state. Fares for longer trips would also increase statewide. GPOC was concerned that Metro could have issues in the competitive market that was proposed in the Burton Report. GPOC also knew its recommendations could receive backlash, as increasing fares by 25 per cent would turn away 600,000 passengers a year, and a flat 10 per cent increase would still turn 300,000 people away. The start of community consultation in January 1997 found a consensus for moderate increases in all centres, as well as standard fares in the three Metro cities. GPOC had until February 28 to hand down its final report, which would plan Metro’s fares for the next three years.

“Privatise or perish”

The GPOC recommendations were a bitter pill to swallow for many. Jim Bacon believed that the GPOC inquiry should be delayed until the government had set out its community service obligations for Metro. He felt the government discouraged public transport use, after John Cleary announced cuts to night services because of bus driver assaults. Bacon criticised Cleary’s belief that public transport is a user-pays system, and that it is expected to be a service paid for with taxpayer money. He also highlighted the popular and well-patronised Busy Bee service in Sandy Bay, which had consistent timetables and routes. The government were not swayed by any of these arguments, and examples of international practices were becoming a blueprint for change.

In December, John Cleary and Michael Foley went on a research trip to New Zealand, where they explored the bus networks of Wellington, and met with representatives from British bus company Stagecoach. Two weeks later, it finally hit the headlines. John Cleary announced his intention to privatise Metro. He believed that they would not exist in ten years if it was not privatised. Jim Bacon speculated that he had heard rumours Stagecoach proposed a buy-out with Sue Napier, the previous transport minister, and accused the government of a hidden agenda. Cleary raised that the recent GPOC draft report justified privatisation, but both Labor and the Greens defended Metro. Michael Foley agreed that Wellington was efficient, but rebuked Cleary that deregulating had the potential to create chaos with multiple operators in a single market. Right before Christmas, John Cleary decided that the GPOC recommendations were not suitable, perhaps owing to their unpopularity with constituents. Metro was given three months to come up with other options, including the prospect of privatisation. The Burton Report was also released at this time and garnered a heavy response from industry.

Burton reactions

The Burton Report recommended regular public transport franchising, and Metro retaining a 10-year exclusivity on its service contracts. They would be required to act with the same contractual obligations as franchisees. Many of its recommendations also affected freight and private coach operators, which left the transport industry concerned with deregulation and privatisation. They rejected many of the changes proposes in the Burton Report, and planned crisis meetings in January 1997 to lobby Labor and the Greens to block deregulation.

The Bus and Coach Association of Tasmania started a campaign for compensation if the industry was deregulated, while the Transport Workers Union said deregulation would increase road fatalities, job losses, and cause small businesses to fail due to poor consultation with the industry. Michael Larissey of Tasmanian Redline Coaches alleged that deregulation had put a $3.5 million dollar Launceston transit centre on hold and would cost jobs across the industry. The Tasmanian Transport Council challenged the idea that deregulation would reduce costs or improve services and called for Cleary to be sacked for his handling of the issue. The council also accused the government of trying to win $80 million in federal funding if it implemented the 1993 Hilmer Report and its national competition reforms.

Jim Bacon agreed that there needed to be reform, but it needed cooperation with the industry, and in its current form Labor would oppose any legislation. He felt it was unacceptable to give Metro an ultimatum, and the government had disbanded the Tasmanian Transport Industry Advisory Committee which would have consulted more widely. Labor called for a moratorium on the sale of public assets, and derided attempts to sell Metro without any assessment on its impact. Jim Bacon believed that there needed to be more long-term thinking in Tasmania, and once they were sold they were gone for good. Premier Tony Rundle rebuffed the criticism.

Answers for Metro

GPOC gave its final report in February 1997, recommending an increase in bus fares by 16 percent and 33 percent for short and long trips respectively. This was estimated to decrease patronage by 6 per cent. John Cleary opposed large increases in bus fares and changed his attitude regarding Metro. He considered any alternatives for improving patronage and fares. The GPOC recommendations were rejected by the government, and Metro were given the chance to develop options for its future.

Metro put a strong case to the government, and their option was accepted in April 1997. The authority was given a three-year reprieve to prove it could cut costs and turn around its deficits. The backdown on privatisation by the government was celebrated by Labor and the unions. The full list of initiatives included:

• 12-month fare freeze
• Fare rises kept under CPI for three years
• Cuts to operating costs by $2 million a year
• Introduce smaller buses for some routes
• Voluntary redundancy of 20 jobs
• Up to 40 FTE drivers replaced with part-time drivers as they retire
• Corporatisation with new legislation
• Less government subsidies
• Policy issues to be the responsibility of the Transport Department

Metro had been saved from privatisation and remained in public ownership, while the venture of privatisation had damaged the credibility of the Rundle government. It would continue to battle deregulation issues with the private transport sector.

Going corporate

Metro started to implement its changes in late 1997. A customer service charter was finally released in July, which reiterated its obligation to the community. It also raised a three-to-five-year program to upgrade bus shelters, terminals, and security. Smaller buses were introduced on ‘Shopper Shuttle’ and dial-a-bus ‘Doorstopper’ services which ran through local streets. Metro was becoming more efficient, reducing its expenditure by over $2 million, or 8.2 per cent, in the 1995-96 financial year. It now had a deficit of $12.2 million, even with a decrease in patronage.

Legislation corporatising Metro was passed by parliament in late 1997, and on January 14^th, 1998, the Metro Tasmania Act 1997 was granted Royal Assent. On February 2^nd, 1998, the Metropolitan Transport Trust formally became Metro Tasmania Pty Ltd.

The years that followed

Metro Tasmania was able to get back into a surplus, thanks to the popular additions of new services and changes to its structure. Jim Bacon became premier in September 1998, and new buses, ticketing systems, and networks were able to help Metro recover.

GPOC continued to regularly review Metro’s fare policy and pricing, even after it was restructured into the Economic Regulator. In 2015, the Hodgman government reduced the scope of the regulator, and Metro fares or efficiency were no longer the responsibility of them. They now fell in with the Department of State Growth.

Conclusion

I originally was writing this out of interests’ sake, but the timing could not have been any more unexpected. It is a fascinating start to understanding what happened thirty years ago that led to the changes we have today. It is interesting to see the neo-liberal, free-market attitudes continue to permeate over public services, even when this mindset is changing.

Governments need to understand the community expectations and service obligations that public transport provides. Of course, things need to be run efficiently, but public transport is almost as important as health, education, and emergency services. The community expects them to function. Admittedly, public transport has had its struggles nationwide lately, but careful planning and consideration can help bring it to greater efficiency. Other states have rolled back on private contractors operating their systems, such as Adelaide’s metro railway system. Privatisation would see profits redirected out of Tasmania, and not necessarily incentives to improve, owing to the stringent contract framework. The government has a lot to consider, and it needs to understand the role of public transport, and the risks it takes by attempting to privatise.

Rockliff plans to enlist economist Saul Eslake to review public assets such as Metro Tasmania, and I hope that Mr Eslake understands the fundamentals of how much public ownership benefits public transport.

References

Images have been sourced from Tasmanian Parliament, or Metro Tasmania. They are used under fair use for educational purposes.

The bulk of this article has been compiled through analysing Mercury articles from 1996 to 1998, and from the Tasmanian Parliament’s Hansard.

Specific references will be added at a later time, however, if there are any questions please feel free to reach out and I will gladly help clarify. There are simply too many references to list in such a short amount of time.

Correction: An earlier version of this essay said that the Metropolitan Transport Trust were making profits in the 1950s and 1960s. This was incorrect, they were subsidised as a public service for its entire history.