Untitled - Civic Exchange

Chapter 3:
Road versus Rail - Financing Mass Transit in Hong Kong
considerable improvements in local air quality, noise pollution, and congestion. In our view, the
exceptionally high external effects of road traffic mean that an essential part of making Hong Kong's
transport more sustainable is to get a greater proportion of travelers off the roads entirely.
A key factor in the choice of transport modes is, of course, the costs and benefits as seen by prospective
users of each mode. In general, there is a significant difference between "private" costs and benefits and
overall "social" costs and benefits. In other words, there is an important distinction between the internal
costs and benefits from the perspective of individual travelers and the costs and benefits that are external
to the individual but affect others.
For example, when using a private car on a congested road a driver experiences only the average "cost" of
the slowdown in traffic and reduction in air quality associated with his/her choice of mode. Yet the decision
to travel by car not only means s/he travels more slowly and breathes dirtier air, but also increases travel
time and reduces air quality for many other people. Normally, drivers do not consider the impact of the
decision to drive or take public transport for everyone else on the road. In other words, the impacts (costs)
to others of private car use in terms of traffic congestion and pollution are likely to be external to the
decision to use a car rather than take a bus or railway.
The same logic applies to the choice of electric-powered rail transport versus internal combustion engine
(ICE) public road transport. While rail offers certain features for which passengers are willing to pay (e.g.,
speed, reliability), many of its benefits (e.g., no local air pollution, reduced noise, less congestion on the
roads) are positive for others but do not accrue directly to passengers themselves. Hence, such benefits are
likely to be external to a passenger's decision to travel by rail. The choice to travel by rail versus bus is
likely to be determined primarily by the relative costs and benefits strictly as seen by prospective
passengers, rather than by whatever external benefits railway provides to society as a whole.
Therefore, it can be argued that some form of public sector intervention is needed in order to bring these
kinds of external considerations into decision-making. 55 Bus and rail fares are greatly influenced by
government transport financing policy. While the Hong Kong government claims that no mode of transport
is subsidized directly, the reality is that government policy is a major factor in the level of private costs
(fares paid, convenience of access) for transport users in Hong Kong. Such policy is far from neutral.
3.3 Transport financing in Hong Kong
In the fiscal year 1999-2000, total expenditure for roads in Hong Kong amounted to HK$3.8 billion, of
which HK$3 billion was for construction. 56 For the same period, total government revenue from vehicle
licensing and registration, plus that from road fuel duty, was HK$8.8 billion. Just over 60% of this came
from vehicle licensing/registration, 57 and the remainder from road fuel duty. 58 To the extent that these
figures reflect relevant expenditures and revenues, as a group, road users in the HKSAR appear to more
than fully pay the internal (financial) cost of construction and maintenance of the roads they use.
55 Barron, W., Perlack R., and Boland J. (1998), Fundamentals of Economics for Environmental Managers,
Westport, Connecticut: Greenwood Press.
56 Highways Department website, , HKSAR Government, January 3,
2001.
57 HKSAR Government (2001), Hong Kong 2001.
58 Hong Kong Customs & Excise Department, personal communication from Y.M. To (for the Commissioner of
Customs & Excise) to Simon Ng, March 23, 2001.
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