Thursday, June 23, 2011

Paying for Trains

Some LegCo members have recently been objecting to the government's policy of granting land for development by the MTR Corporation to fund the construction of the South Island Line. The problem with this is that they don't seem to be offering any alternative.

No one who observes the air pollution and traffic congestion in Hong Kong can doubt that the territory's railway network needs to be extended. And most would agree that it makes sense to integrate any extension with the existing network, which means putting it under the MTR rather than a new operator.

If we accept these assumptions, the several planned new lines will not build themselves. Given the vast sums of money required to construct them, what is the least painful way of financing these developments? The government could hand out cash to cover the cost, which means taxpayers would bear the burden directly. Or it could require the MTR to fund it out of its own revenues, which would almost certainly mean fares rising substantially to pay for it. With many already objecting to the recent modest fare increase at a time of inflationary pressure, this would be politically unacceptable and would probably drive many passengers back on to the overcrowded roads as a cheaper alternative.

Of course, the property method is also depriving the taxpayers of the potential revenue that would otherwise accrue to the government from the sale of these sites, but in the current circumstances it seems the least objectionable way of achieving the desired goal. The real objection in my view is that, since the MTR is partly privatized, some of the eventual return from this handout will go into the hands of private investors at the expense of the taxpayers. The MTR should have been left in full public ownership.

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