Editorial | More than JUTC fares

The short-term political and economic impulses for the Government’s steep reduction in fares charged by the state-owned bus company are obvious. And the move is likely to be popular.

Already, the cuts have been embraced by the political Opposition. Their only complaint, it seems, is that the administration did not go far enough, although precisely how so they did not make clear.

The positive reactions notwithstanding, Nigel Clarke, the finance minister, who greenlit and announced the initiative, owes Jamaicans a fuller explanation of this policy action, especially in terms of what it means for future fiscal policy, how it fits within his economic philosophy, and whether he harbours any fears of having created a moral hazard. Dr Clarke might also find in the situation an opportunity to promote a debate of a long-term, transformative policy for the public transportation sector.

A month ago, the Government agreed to a compounded 38 per cent increase in fares for bus and taxis, to be implemented in two tranches. The first portion, 19 per cent, came into effect in October. The second tranche starts next April. The first segment pushed the fare for a six-and-a-half kilometre bus ride in Kingston to J$160.

Last week, Dr Clarke confirmed what economists understood was a likely effect of the increases: they have placed upward pressure on inflation, to the point, the minister suggested, of the central bank’s four to six per cent target being undermined.

“Given that the cost of transportation services comprises a notable portion of the consumer price index basket, the Bank of Jamaica further advises that the announced increases in taxi fares, cumulatively, would add approximately two percentage points to inflation if not balanced by countervailing measures,” he told Parliament.

His response: to reduce fares of the state-owned Jamaican Urban Transit Company (JUTC) by between a third (students) and 50 per cent (adults and pensioners). The reductions will happen in two phases – in January and April, the second coinciding with the start of the new financial year. Both are taking place as campaigning hots up for municipal elections and for parliamentary elections that are due in two years.

TEMPORARY

According to the minister, lowering the fares is temporary – for 24 months, until the inflationary impulses in the economy settle. Thereafter, JUTC fares, frozen for several years, will increase.

Several questions, apart from the optics of the situation, clearly arise from the minister’s decision. These include why this specific tool was chosen as the inflation buster, rather than some other macroeconomic intervention.

Moreover, private bus and route taxi operators, having just been granted fare hikes, may well interpret Dr Clarke’s action as using a state company to set the hand of the market against them, especially against the backdrop, over the next two years, of upgrading the JUTC’s fleet. And what happens if the cost for services elsewhere in government begins to impact inflation?

There is also the fact that the Government is extending to commuters in the capital (where the JUTC operates) and Montego Bay (where a smaller counterpart exists) a largely untargeted transportation subsidy that is not enjoyed elsewhere. Even before the fare cuts, the JUTC was expected to lose $14 billion on its operations, which will be partially offset by a $7-billion direct subsidiary. The remaining $7 billion was projected to drive the company’s accumulated deficit to around J$20 billion and shareholders equity to a negative $17 billion. Dr Clarke says his move costs the company around $1 billion in revenue. That goes directly to the loss column of the profit and loss statement and on the overall balance sheet.

INSOLVENT

In effect, the JUTC is insolvent. It continues to operate because of its access to taxpayers’ pocketbooks. Which, from a policy standpoint, would not necessarily be bad if a robust case could be made of the company’s importance to the efficiency of the national economy.

However, it is widely acknowledged that the JUTC is badly run. Its accountability is deficient, and as the auditor general showed in more than one review of the entity, its resources tend to be syphoned away by persons unknown.

This operational inefficiency, plus the JUTC’s shortage of buses, may contrive to limit any success in moderating inflation Dr Clarke expects to enjoy from the fare cuts, if its fiscal impact is negative. Prior to the fare reduction, the JUTC transported a minor portion of the capital’s commuters, who preferred the certainty and speed – if not the cavalier waywardness and dangers – of the private operators. It is moot, therefore, how many of these commuters will be enticed to the JUTC by its even lower fares.

The situation, nonetheless, should be a catalyst for new, serious thinking of how Jamaica plans and organises its transportation system – public and private. Which should lead to a policy encompassing how and where roads are built; who pays for them; what alternative types of transportation systems might be suitable for Jamaica; and the role, in any, private vehicles should have in the transportation matrix. In other words, transport should be part of an overall national plan that takes into account issues such as expected shifts in the economy, climate change, and energy sources.