The "Tramsurance" scheme, set to launch on July 20, called for commuters to put A$20 a month into a fund that would then pay fines handed to passengers caught evading fares on Melbourne's buses, trains and trams.

The scheme, similar to the "mutuelles des frauders" set up in Paris, was conceived by university students Tom Pisel and Sohut Raut after Pisel was hit with a A$180 fine last year for losing his ticket.

Fines have since been hiked to A$207.

Up to a thousand people have signed up for the fund, which last month won the "Most Original and Disruptive Award" at a gathering of Internet entrepreneurs.

"The only reason why there is demand is because the transport system is failing the people," Pisel told Reuters.

State officials from Public Transport Victoria however have ordered the Tramsurance entrepreneurs to shut down their website, threatening to tell the police if it was not down by the end of the day on Thursday.

"It is an offence to travel without a valid ticket and it is also an offence to incite someone else to break the law," a Public Transport Victoria spokeswoman said. (Reporting by Aicha Marhfour; Editing by Paul Tait)

• A Permanent Economic Emergency