Fares, Secrecy, and the Suburban Rail Loop: A Case Study in Transit Funding Politics
Key Takeaways
- Victoria wasn't wrong to fund part of the Suburban Rail Loop (SRL) through fares; it was wrong to hide it.
- Secrecy, not the policy itself, turned a defensible funding decision into a political scandal.
- Australians dramatically underestimate how heavily their public transport is already subsidised, which makes fare rises politically toxic.
- Low or free fares don't meaningfully grow public transport mode share, but they do starve systems of investment.
- Reasonable fares with targeted low-income support outperform blanket low fares on both investment and equity.
- Adding road user or congestion charging to reasonable fares is the strongest funding model for public transport.
- Most Australian states are stuck in the least desirable funding scenario: low fares and declining investment, even as population growth accelerates.
- London's experience shows voters can accept higher fares and new charges when they can see the resulting improvements.
- The lesson for governments everywhere: fares can legitimately help fund transport investment, but only if the case is made honestly.
What Next?
Do you need to have a conversation with the public about the need for better fare policies?
Introduction
Two weeks ago, an audit report quietly blew up a political story in Victoria, Australia. Buried in the detail of the Auditor-General's review of the Suburban Rail Loop (SRL) was a fact the Victorian Government had never volunteered to the public: a chunk of the annual fare increase Melburnians have been paying since 2025 wasn't just the usual CPI adjustment; it was a levy, introduced specifically to help fund the SRL.
The reaction has been swift, and not just from the usual critics. Even newspapers normally sympathetic to the Labor government have gone after it hard over the secrecy. On that point, there's some old advice every politician should tape to their desk: if you don't want to get caught doing stupid things, don't do stupid things. But that's not really what I want to write about.
The more interesting question buried underneath the scandal is one that is getting far less attention than it deserves: is it actually good policy to fund public transport megaprojects, at least partially out of the farebox? That's what this post is about, not whether the SRL is worth building, and not whether the Victorian Government should have been upfront about it (it clearly should have been), but whether fares are a defensible way to pay for transport investment at all.
To get there, I need to give readers, especially the many of you outside Australia, some background on the Suburban Rail Loop and on how fares policy works in Victoria and the rest of the country.
The Suburban Rail Loop (SRL)
The Suburban Rail Loop was announced in 2018, in the run-up to a state election, at a ballpark cost of around AU$50bn. It was designed to benefit key marginal seats, and it worked. The project proved hugely popular with the public.
A mega transport project with genuine public support should be a dream scenario for someone like me. The problem is that most transport experts (including me) weren't convinced it was the right thing to build. The Victorian Ombudsman later confirmed why:
“The brainchild of a former Ministerial staffer – whom we do not criticise – this project was shrouded in excessive secrecy until it was announced as an election promise in 2018. It was so secret it was kept from the Secretary of the relevant department, and most of the board of the originating agency. The stated reason for the secrecy – to mitigate against land speculation – does not stack up, as no land was acquired by the responsible agency before a public announcement, and in any event would not justify keeping the relevant Secretary in the dark. It was ‘proved up’ by consultants rather than developed by public servants, and its announcement ‘blindsided’ the agency set up by the same government to remove short-term politics from infrastructure planning.”
Having worked on a mega metro project myself, I have strong views of what the process should look like: figure out the right project for the city first, and only then work out how to make the politics land. The SRL ran that process in reverse. Everyone I've spoken to who helped plan Victoria's public transport before the SRL was announced tells the same story: they didn't believe in the project. One Labor figure put it more bluntly, calling it a "dog of a project."
Poorly planned megaprojects are also expensive megaprojects, and the SRL has followed the script. It's now been split into three stages, with the total bill expected to top AU$100bn, and Victoria is struggling to fund even Stage 1, priced at roughly $35bn.
That funding gap is what pushed the government toward the farebox. According to the Victorian Auditor-General:
“However, it did not announce its decision to introduce a new levy on public transport fares from 1 January 2025 as part of the annual Consumer Price Index (CPI) fare increase. The levy involves an annual 1 per cent increase to all public transport fares in metropolitan Melbourne and regional Victoria, on top of existing annual CPI adjustments.
The government plans to allocate 60 per cent of the revenue it collects through the levy, estimated at $4.8 billion in net present value (NPV) terms to 2062, to fund SRL East.
This levy will be the project's largest source of value capture revenue.
The government first approved the levy in August 2021. It also confirmed it in December 2023 and November 2024 when it made further decisions on the project's value capture revenue package.
In November 2024, the government confirmed it needed the levy to service its borrowings for the project.
The government and Transport Victoria did not acknowledge the levy in their public communications about the 2025 and 2026 annual fare increases.”
That's the immediate scandal. But underneath it is a genuinely important policy question, and it's the one I actually want to dig into.
Public Transport Fares in Australia
To understand why the Victorian Government reached for the farebox, it helps to understand just how lopsided fare economics already are across Australia. A recent report from peak body PTAANZ and consultants LEK lays out the scale of the problem:
“on average for every $5 that the passenger pays, the operating public transport authority typically must find c.$50 to fund operating costs. Over the last five years, operating costs have grown at c.6% in the eastern states. At the same time, cost-of-living pressures have resulted in some governments discounting public transport fares: Queensland introduced 50-cent public transport fares in 2024, and Victoria capped daily regional rail fares in 2023. Consequently, the gulf between ‘farebox’ revenue — that which is derived from passenger fares — and operating costs has widened.”
I saw this dynamic up close about a decade ago, working on a fares policy reform in New South Wales, where cost recovery sat around 20 per cent at the time. What stood out most in our customer research was that most of the public assumed the opposite. People genuinely believed government made a profit from public transport, and that fare rises were profiteering. Before we could get the reform agreed politically, we had to spend real effort just educating politicians on the actual economics. The reform went ahead anyway, including scrapping some free fares, and it worked: patronage and revenue both grew, service improvements helped, and the public ended up viewing the new structure as fairer.
That NSW research was specific to one state, but in every conversation I've had about fares policy elsewhere in Australia, I've encountered the same misconception. Australians are heavily subsidising their public transport systems and mostly don't know it.
That gap between perception and reality matters politically. It makes voters instinctively resistant to fare increases, and it rewards politicians for freezing or cutting fares. Queensland's move to 50c fares is the clearest example, rather than explaining the real cost structure. It's not hard to see how that same dynamic made the Victorian Government reluctant to admit that part of its fare increase was really a levy for the SRL.
Set aside, for a moment, whether the SRL itself is a good project, or whether the government should have been upfront about the levy. The sharper question is this: is it good policy to use fares to help fund public transport investment at all?
Using Fares To Pay For Public Transport Improvements
Before getting into how we pay for public transport, some people might ask whether we need to keep investing in it at all. I'll make the case properly in an upcoming post on what a genuinely great transport system looks like; spoiler: public transport is central to it, but for now I'll take that as given. Even the best public transport cities in the world, like Singapore and Hong Kong, keep investing heavily in it, and almost everywhere else there are gaps to close in coverage, frequency, capacity, reliability, and resilience.
So the real question is how that investment gets funded. Consider three scenarios.
Scenario 1: Free or very low fares, low cost recovery. Any new public transport project has to be funded entirely from general government revenue. Meaning all taxpayers foot the bill, whether they use the system or not. Advocates of low fares see no issue here: just get government to invest. The problem is that transport then has to compete for funding against the cost of living, health, education and other priorities that matter more to the general public than to the relatively small share of people who rely on public transport daily. All else being equal, that competition means public transport loses out and gets less investment, and less ridership growth, than under the alternatives. It's also worth noting that low fares on their own rarely shift mode share much.
Scenario 2: Reasonable fares, moderate cost recovery with equity handled through targeted low-income support. This generates meaningfully more revenue for investment than Scenario 1, without pricing anyone out, because the equity gap is closed through targeted payments rather than blanket low fares. All else being equal, this means more investment, more ridership, and no worse equity outcomes than Scenario 1.
Scenario 3: Reasonable fares plus road user or congestion charging, revenue hypothecated to public transport. This scenario compounds the benefit. Congestion charges both raise direct revenue for transport and, being the most effective lever we have for shifting people out of cars, drive additional ridership, which brings in still more fare revenue. A well-run system under this model could approach 100 per cent operating cost recovery, freeing up scope for genuinely significant new investment (in public and active transport alike), while also cutting the road-building costs that would otherwise be needed as car use declines. Full recovery of operating costs doesn't cover capital costs, of course, but removing the operating question removes a significant barrier to getting a project approved in the first place.
Here's how the three scenarios compare:
Australia's state governments are, almost without exception, stuck in Scenario 1. For much of the past decade, relatively healthy state finances masked that; now, except in Western Australia, deficits and debt are climbing as immigration-driven population growth puts more demand on transport systems than ever. We're heading into a vicious cycle: growing populations and no money to build the infrastructure needed to keep pace, let alone improve things.
Seen through that lens, Victoria was right to look to the farebox to help fund the SRL. Its mistake was the politics of how it did it. And that's a problem facing not just Victoria, or Australia, but transport authorities everywhere. Which is why, to work out how to solve it, I want to turn to my old stomping ground: London.
How do you make it work politically?
I grew up in London in the 1980s and 90s. Its public transport was the best in the UK, admittedly a low bar, but it was coasting on past glories. Funding, including fares, hadn't kept pace with maintenance needs, and the system was visibly declining: poor reliability, worsening services. Then the governance changed.
In 2000, London got a directly elected Mayor with devolved power over transport, among other things. The winning candidate campaigned on introducing a congestion charge and expanding bus services, funded in part by the charge's revenue. From the mid-2000s through the mid-2010s, fares rose faster than inflation, and the political narrative behind it was investment: tangible, visible improvements to services. It worked. The then Mayor was re-elected in 2012.
By the mid-2010s, that combination had pushed Transport for London's farebox cost recovery to around 70 per cent of operating costs. It's dropped a few points since, as fares have fallen roughly 10 per cent in real terms under the current mayor, a shift some observers argue has been absorbed through unsustainable cuts to maintenance, with reliability now suffering as a result. Patronage comparisons are muddied by post-COVID changes to travel patterns, but growth continued right up until the mid-2010s, precisely when fares, in real terms, were at their highest.
What both policies, the congestion charge and the above-inflation fare rises, had in common was a narrative Londoners could actually see play out: less congestion, more buses, better reliability. Voters proved willing to accept new charges and higher fares when they could point to real benefits in return. I suspect that pattern would hold in plenty of other places too, if politicians were prepared to make the case for it. Too many instead take the short-term popularity hit of cheap fares, while the system quietly deteriorates as maintenance and capital works get cancelled.
Given how much public support the SRL had, I think the Victorian Government had a real opportunity to make the case for higher fares funding genuine improvements, and to sell it. Instead, Victorians ended up paying the higher fares anyway, just without ever being given a reason why.
Since the secrecy story broke, Victoria's new Premier, a former transport minister, has announced he'll scrap the 1 per cent levy. How the lost revenue gets replaced remains unclear, and the state's Auditor-General was already warning that Victoria couldn't fully fund the SRL before this backflip, a shortfall that could delay contract signing and push costs even higher.
In the UK, they'd call that a complete Horlicks or a dog’s dinner. In other words, a complete mess.
Conclusion
The real lesson from the SRL saga is that governments keep getting the politics backwards. Victoria wasn't wrong to look to the farebox; it was wrong to hide it. By the time an audit report uncovered the levy rather than announcing it as part of a plan for better services, it had already lost the one thing that makes fare increases politically possible: a visible story about what passengers get in return.
London's experience shows this doesn't have to be the outcome. Fares rose well above inflation for the best part of a decade, and a congestion charge was also introduced, because both were sold as the price of a public transport system that was demonstrably getting better, with more buses, more reliability, and more capacity. Voters rewarded that trade-off at the ballot box.
Scrapping the levy doesn't solve Victoria's problem; it just defers it, and leaves an even bigger hole in the SRL's funding with no clearer answer for how to fill it. Australian governments are stuck in the low-fare, lower-investment scenario at exactly the moment rapid population growth demands the opposite. Until politicians are willing to make the honest case that reasonable fares plus targeted equity support (and ideally, road pricing) buy a better transport system for everyone, we'll keep lurching between secrecy scandals and funding shortfalls, rather than building the case for reform in the open.