CHAP 6

What is a Transport Subsidy?

Financial aid or incentive provided by the government.

Goal: PSK

• Promote economic development

• support social welfare

• keep public transport fares low.

2 Arguments FOR Subsidies

EE

1. Efficiency:

• Reduces traffic congestion

• improves road safety

• Reduces pollution by encouraging public transit use.

2. Equity:

Ensures accessible transport for low-income (individuals ,students, the elderly, and people with disabilities).

3 Arguments AGAINST Subsidies

FLR

1. Financial Burden: Diverts government funds away from other vital national sectors

2. Long-Term Costs: Subsidies can become increasingly expensive over time.

3. Risk of Fraud: Potential for manipulation by non-eligible individuals and companies.

Government Roles in Transport Subsidies

PMBESE

• Provide financial assistance (e.g., helping operators like KTMB & MAS reduce operating costs).

• Maintain low fares for social welfare.

• Build infrastructure and facilities.

• Ensure fair market competition

• safety rules

• environmental standards.

Positive Impacts of Transport Subsidies

ISE

• Incentivizes eco-friendly/green vehicle technologies.

• Shifts commuters from private cars to public transit.

• Enhances overall public mobility and accessibility.

Negative / Unintended Impacts of Subsidies

• Fuel subsidies (e.g., diesel) can increase carbon emissions and pollution.

• Can encourage Urban Sprawl—making housing areas spread far from city centers, which makes public transit less efficient and costlier to maintain.

What is Cost-Benefit Analysis (CBA)?

• An economic evaluation tool used by governments to measure the overall social efficiency of public projects.

• Decision Rule: Accept project if Social Benefits > Social Costs.

Example of CBA (Highway Project)

• Costs: Land acquisition (Right of way), construction, and ongoing maintenance.

• Benefits: Travel time savings, higher property values, and reduced traffic congestion.

Financial Appraisal vs. Cost-Benefit Analysis (CBA)

• Financial Appraisal: Strictly focuses on direct revenue, cash flow, and financial formulas (Ignores social/external costs).

• CBA: Evaluates broader external & social impacts (e.g., travel time, accidents, pollution, congestion).