A subsidized free monthly card slowed inflation in Germany

by time news
Two weeks after the end of The German experiment to cheapen public transportation, the data indicates success in every possible parameter. At the same time, questions are being raised around the world about how this service should be treated, especially in light of the climate crisis and in a challenging period of rising inflation and a spike in energy prices.
For three months – June, July and August – the German government subsidized a free monthly pass at a cost of only 9 euros, significantly lower than 86 euros or more on normal days. The card, which cost the government 2.5 billion euros, was part of a $30 billion aid package that the government launched in May and was designed to lower the Cost of living. The emergency move was required following the Russian invasion of Ukraine, which spiked energy prices, especially in Germany which is highly dependent on Russian gas. Indeed, according to estimates, inflation in August, at 7.9%, may have been about 2% higher according to a study by the University of Cologne. The reduction in travel combined with the reduction of the fuel tax curbed it.

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Info took the sticks out of the wheels

The discounted ticket granted the right to move freely on the state’s trains, trams and buses, except for high-speed intercity trains. A total of 52 million such tickets were sold and about a billion additional trips were made every month. According to a survey by the Association of Public Transport Companies in Germany (VDV), which represents 630 companies, 56% of the ticket buyers stated that the low cost was the main motive for purchasing it, while 43% stated as the main motive their desire to avoid driving. A survey by TUM University in Munich cited by Deutsche Bahn, the state-owned rail operator, showed that a fifth of ticket buyers had not used public transport before. No wonder VDV declared the project a resounding success, and German Chancellor Olaf Schulz defined it as “one of the best ideas we had”.

The VDV further estimated that the one billion additional trips made on public transportation each month saved 1.8 million tons of carbon dioxide emissions throughout the trial period. An amount that is equivalent to the carbon footprint of 350,000 houses in Germany per year, or to the reduction of emissions on the German highway system (Autobahn) for one year, if there were a speed limit there. Researchers from the University of Potsdam found that the pollution levels in the cities decreased by about 6% following the introduction of the subsidized card – although not a shocking change, but a change nonetheless. “The results show that subsidizing public transportation may be a viable option for reducing air pollution, especially in cities, thus contributing to the UN’s sustainability goal of creating more resilient, safer and healthier cities,” the university’s report states.

Despite the enormous popularity of the card, opinions about its significance for the preservation of the environment are divided. At the HTW University in Berlin, they noted that the VDV data, according to which 22% of the trips would not have taken place without the subsidized card, indicates that it generates more traffic and is used for “additional trips” and not “alternative trips” – that is, higher use of public transportation on certain routes, that we do not replace the use of a car. Indeed, according to TUM University data, there was only a 3% decrease in the use of private vehicles during the trial period. However, the reduction of fuel taxes to support private car owners may have curbed their switch to public transport.

Alongside doubts about the card’s contribution to the environment, there is broad agreement about its benefits to the public. Besides lowering costs, the card simplified the procedures for using public transportation. In this way, users are spared the trouble of calculating the appropriate fare for each trip, which usually depends on the number of stations traveled or the means of transportation used. Passengers could simply hop between the bus, train or subway, without thinking too much, using the “all inclusive” method.

The “additional trips” referred to in the HTW study also received extensive coverage in the local media and in surveys conducted by a variety of organizations. Among other things, passengers stated that the subsidized ticket allowed them to go on a trip or vacation that they would not have been able to afford on normal days.

But despite the popularity of the experiment, on September 1 it came to an end and a successor has not yet been appointed. Conservative German Finance Minister Christian Linder pointed out that the continuation of the subsidy will cost the government 14 billion euros a year and opposed the extension of the validity of the program, the cost of which, according to him, is “too high in the long term.” In Berlin, meanwhile, they announced that they will offer a subsidized card at a cost of 29 euros per month, from October to December, for use in the city center.

Joachim Nagel, the president of the federal bank, the Deutsche Bundesbank, estimated that the end of the experiment is expected to push prices up and possibly even raise inflation to a double-digit rate of about 10%, a figure that has not been seen in the country in the last 70 years. Meanwhile, voices from the coalition floated various ideas for alternatives that are more expensive than the experimental card, but significantly cheaper than the current situation. Thus, for example, a proposal by the conservative Prime Minister of Bavaria, Markus Zeder, resulted in an annual ticket costing 365 euros, while the VDV started a campaign for a national free monthly ticket for 69 euros. At the same time, the Progressive Green Party, which belongs to the coalition, offered a monthly regional card at a cost of 29 euros, or a monthly national card at a cost of 49 euros.

The discounted ticket wasn’t just pure fun. Many passengers complained about overcrowded trains, and social media was awash with videos showing the crowded platforms and trains, under the viral hashtag #9euroticket. The overcrowding was a direct result of the rapid implementation of the plan, which did not leave time for the transportation system to prepare for a surge in demand during the already busy summer period. Many transport lines were operating with insufficient staff, and unusual delays were recorded during rush hours. This is the nature of a subsidy – it may try to encourage certain behavior or make things easier for citizens, but many times it does not address the problem from the root. Such as, for example, the crumbling infrastructure of the German railway system or a lack of manpower.

Germany is not a pioneer in lowering rates. In Spain, starting September 1st and until the end of the year, it will be possible to use the trains for free. 56 cities across the continent, including Estonia, Belgium, Malta, Luxembourg and Sweden, offer free transportation. The idea, although successful, wipes out revenues and increases maintenance and operation costs, that is, it may threaten the financial stability of the public transportation networks. This review is valid on the assumption that they must function as a self-financed or for-profit entity.

However, the central value in cheapening public transportation and simplifying its use conveys a message that it is not a commodity, but a public good, just like other public services such as health, education, roads, lampposts, libraries or parks. This is an approach that challenges the principles of the free market, but it sends a message that people have the right to move around regardless of the financial means at their disposal.

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