Commonwealth Road Funding Since 1990


Research Paper 13 1999-2000

Richard Webb
Economics, Commerce and Industrial Relations Group
7 March 2000

Contents

Major Issues
Introduction
Changes to the Commonwealth's Role in Road Funding
Rationalising Responsibilities
National Road Network
Untying Funding

Local Roads and Identified Road Grants
Untying of Payments to the States and Identified Road Grants

Road Programs

Provincial Cities and Rural Highways Program
Black Spot Program
Urban Public Transport Program
One Nation Statement
Roads of National Importance

Other Issues in Road Funding

Funding Levels
Hypothecation
Identified Road Grants
Funding Certainty

Endnotes
Appendix 1: Commonwealth Road Expenditure by Program and Road Category 1987-88 to 1999-2000
Appendix 2: National Highway System

Major Issues

The level of Commonwealth road funding remains contentious. With the real level of road related expenditure having changed only marginally since 1986-87, and actual and forecast levels of National Highway funding falling below 'needs'-as estimated by the Bureau of Transport and Communications Economics-the level of spending is often criticised as inadequate by groups such as the Australian Automobile Association. But major increases in road funding seem unlikely in the light of overall budgetary objectives and competing demands for funds for other uses.

While, in theory, the States(1) can use untied 'identified road grants' for any purpose, in practice, the Commonwealth has sought assurances that the States spend the funds on roads. To end this illogical and contradictory situation, the House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform has recommended that untied road funding paid to States and local government be paid as tied block grants. This would achieve the Commonwealth's intention that the funds be spent on roads while allowing the States flexibility as to the projects on which they spend the grants.

Whereas identified road grants paid to the States have been absorbed into State financial assistance grants, identified road grants paid 'through' the States to local governments continue to be identified separately and distributed on a different basis from local government financial assistance grants. No timetable has been proposed to absorb identified road grants into local government financial assistance grants.

Arguments that more of the revenue raised from motor vehicle taxes should be earmarked (hypothecated) for spending on roads are questionable. The level of Commonwealth road funding is determined in the overall budget context without reference to the revenue raised from particular taxes, and expenditure on roads competes with other expenditures. The House of Representatives Standing Committee has recommended that the hypothecation provisions in the Australian Land Transport Development Act 1988 be removed to end the notion of a link between fuel excise revenue and the level of road funding.

The practice whereby the Commonwealth determines the level of road funding on a year-by-year basis has resulted in uncertainty about funding levels. Critics claim that this impedes the ability of the Commonwealth and the States to undertake long-term planning, and increases road construction costs. The House of Representatives Standing Committee has recommended that the Commonwealth provide greater certainty by adopting a guaranteed funding approach for a rolling three-year period.

Introduction

Commonwealth governments have long been involved in road provision and funding, and the Commonwealth's role has changed considerably in the 1980s and 1990s. This paper provides an overview of Commonwealth involvement throughout the 1990s, and updates a paper on Commonwealth road funding since 1980 written by Mr Denis James of the Department of the Parliamentary Library.(2) The Commonwealth's role in road funding inevitably raises issues of comparative levels of funding of road and rail infrastructure, policy 'neutrality' with respect to road and rail, and cost recovery. These issues are beyond the scope of this paper but it is intended that they will be addressed in future research papers.

At the beginning of the 1990s, the Commonwealth funded as grants to the States four categories of road: National Highways, national arterials, State arterials, and local roads. In the case of State arterials and local roads, the Commonwealth provided assistance to the States and local governments to 'top up' funding provided by those governments. For the three years beginning in 1990-91, the Commonwealth also funded three other programs: the Black Spot; Provincial Cities and Rural Highways; and Urban Public Transport programs.

The Commonwealth has since rationalised its funding and now funds only national roads, namely, the National Highway System, which it has funded entirely since 1974 and-since 1996-Roads of National Importance, which the Commonwealth funds jointly with the States. The Howard Government also reintroduced the Black Spot programs. The Commonwealth also provides general purpose assistance to the States and local governments which, theoretically, can be used for any purpose but, in practice, is spent on roads (see discussion of 'identified road grants').

The Commonwealth's role in road funding has been contentious, resulting in numerous political tussles. Road provision is a particularly contentious issue in Australia partly because of the combination of large distances and relatively small population. Thus promises regarding roads feature in virtually every election campaign. The structure of government further complicates matters, with all three tiers involved in road provision. Disputes have arisen over the level of funding, the designation of responsibility for funding among the three tiers of government, the allocation of funds among the States, and which roads should be funded. For example, it took many years for the basis of distribution of grants among the States to be changed from historical shares to shares based on Commonwealth Grants Commission relativities. Another example is the dispute between the Commonwealth and NSW Governments over the designation of the proposed Western Sydney orbital road, which would by-pass much of Sydney. New South Wales wants the road to be part of the National Highway System-which the Commonwealth would fund in full-whereas the Commonwealth Minister for Transport, the Hon. John Anderson, wants it to be a Road of National Importance, which would be funded equally by NSW and the Commonwealth.(3) More generally, the States are vying to have roads within their jurisdictions declared Roads of National Importance to attract Commonwealth funds. And promises made but not delivered-the Canberra-Braidwood-Jervis Bay road, for example, is not yet completely sealed despite promises extending over at least 30 years-are continuing sources of dispute.

The Commonwealth's involvement in road funding was most recently reviewed by the House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform, whose report was tabled on 24 November 1997.(4) The Government has not formally responded to this report and has implemented few of its recommendations.

Changes to the Commonwealth's Role in Road Funding

Major changes to the Commonwealth's role in road funding since 1990 include:

  • the decision to concentrate on funding a national road network
  • the 'untying' of local roads grants and their incorporation into general purpose assistance to local government as 'identified road grants', and
  • the 'untying' of State roads grants and their incorporation into general revenue assistance to the States as 'identified road grants'.

Other changes include:

  • the cessation of the Australian Centennial Roads Development program
  • the introduction, cessation and reintroduction of the Black Spot program
  • the introduction and cessation of the Provincial Cities and Rural Highways program
  • the withdrawal of the Commonwealth from funding urban public transport with the cessation of the Urban Public Transport program
  • the introduction of the Roads of National Importance program in March 1996, and
  • the injection of additional funds through the One Nation statement, which also extended the National Highway System.

Rationalising Responsibilities

At the beginning of the 1990s, the Commonwealth provided grants to the States for the construction and maintenance of roads. Funding was under the Australian Centennial Roads Development (ACRD) program.(5) The ACRD-which began on 1 January 1989-replaced the Australian Land Transport Program (ALTP) and the Australian Bicentennial Road Development (ABRD) program.(6) The ACRD was established by the Australian Centennial Roads Development Act 1988 (ACRD Act).

Like the ALTP and the ABRD, the ACRD principally provided grants to the States for the construction and maintenance of roads. The program also provided funds to approved organisations for land transport research and road safety programs. Funds were also available for urban public transport projects (and mainline capital railway projects) which were expected to yield high economic returns.

The ACRD program changed the categories of roads that existed under the ALTP and the ABRD programs. Under the ALTP and the ABRD, funding was provided for national roads (the National Highway and 'developmental' roads), urban arterial roads, rural arterial roads, and local roads. The ACRD combined as State arterial roads, roads that the ALTP and the ABRD had classified as urban arterial roads and rural arterial roads. The ACRD also established a new category of 'national arterial' roads. The ACRD thus funded National Highways, national arterial roads, State arterial roads, and local roads. For a road to qualify as a national arterial road, the Minister for Transport had to be satisfied that its construction would improve the competitiveness of export or import competing industries or facilitate tourism significantly. Construction also had to have high benefit-cost ratios. Eligibility for funding depended on the category of road. For example, funds for national arterials could be used only for construction and upgrading.

The bulk of expenditure under the ACRD program was allocated to National Highways and national arterials. The distribution of funds among the States for State arterial and local roads reflected the relativities under the ALTP and ABRD programs. Funding of the National Highway and national arterials, on the other hand, was at the discretion of the Commonwealth. Funds for local roads were distributed among local authorities on the basis of principles each State developed and which the Minister approved. The ACRD continued the arrangements-established under the ALTP and the ABRD-whereby, on the request of a State, a proportion of State arterial funds could be redirected either to urban or public transport projects or capital projects associated with the operation of mainline railways.

National Road Network

In 1974, the Whitlam Government assumed full financial responsibility for the National Highway System and the Commonwealth has since retained this responsibility.(7) But, as noted, the Commonwealth also provided funds for State arterial and local roads. As a result, the division of responsibility for road funding before 1991-apart from the National Highway System-was unclear because no one level of government had clear responsibility for a particular category of road.

An important feature of the period since 1990 has been the Commonwealth's reordering of its funding priorities. At the July 1991 Special Premiers' Conference, it was recognised that the Commonwealth should define more clearly its road funding program to remove the ambiguity as to which tier of government was responsible for which roads. The Conference agreed that:

The Commonwealth's responsibility in road programs should be concentrated on national highways and other roads of national significance.(8)

The Commonwealth has since seen its principal responsibility as funding a national network of roads, with State and local governments responsible for funding State and local roads respectively.

In 1992, following consultations with the States, the Commonwealth limited its post-1993 road funding program to national roads. These comprised the existing National Highway System, interstate routes linking Sydney and Adelaide, and Melbourne and Brisbane, and urban roads linking the points of termination of the National Highway System in Sydney, Melbourne, Brisbane, Perth and Adelaide. The National Highway System comprises those roads which have specifically been declared to be National Highways, and includes the major highways linking all State and Territory capitals, the Bruce Highway from Brisbane to Cairns and the highway linking Hobart to Burnie. In January 1994, the Newell and Sturt Highways were incorporated into the National Highway System (see map in Appendix 2)).

The House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform reviewed the Commonwealth's approach to road funding in the context of broader national objectives noting that:

... [it] supports the Commonwealth's ongoing responsibility for the national highway system and roads of national importance in achieving national objectives.(9)

Untying Funding

The States had long argued that their budget flexibility was limited by the tying of Commonwealth assistance in the form of specific purpose payments. At the Special Premiers' Conferences convened by the Hawke Government in 1990 and 1991, the Commonwealth agreed to a proposal by the States that more Commonwealth funding should be provided in the form of general revenue grants rather than as tied grants. As a result, it was agreed that road funding, other than for the National Highway System, should be untied.

Local Roads and Identified Road Grants

At the October 1990 Special Premiers' Conference, it was agreed that funds for local roads would be untied with effect from 1 July 1991. Such funds are now included in general purpose assistance paid to local governments and are not subject to any formal conditions that they be spent on roads. However, all these funds continue to be identified separately as 'identified road grants' because the allocation among the States of these grants differs from the allocation of financial assistance grants to local government. Whereas the interstate distribution of local government financial assistance grants is on an equal per capita basis, untied road funding is distributed among the States on the basis of criteria established under the Australian Land Transport Development Act 1988. In both cases, State Grants Commissions determine the intrastate distribution of payments to local governments on the basis of fiscal equalisation. No timetable has been proposed to absorb identified road grants into local government financial assistance grants. The bulk of local roads funding is paid 'through' the States to local governments.

Untying of Payments to the States and Identified Road Grants

It was agreed at the July 1991 Special Premiers' Conference-and reaffirmed in the One Nation statement that the former Prime Minister, Mr Keating, made on 26 February 1992-that the Commonwealth would untie annually a minimum of $350 million of grants for State arterial roads. In June 1992, the Prime Minister indicated that the Commonwealth would untie these grants by transferring them from specific purpose payments to general revenue assistance as 'identified road grants'. The new arrangements came into effect from 1 January 1994. As a result of the starting date, payments of identified road grants in 1993-94 amounted to half of $350 million. The Prime Minister also indicated that the aggregate level of identified road grants paid to the States, starting from the base of $350 million, would be indexed to movements in financial assistance grants.

In the 1995-96 budget, the Government indicated that the basis for distributing identified road grants among the States would be progressively changed from historical shares to shares based on Commonwealth Grants Commission relativities by 1997-98. In 1995-96, two-thirds of the grants were distributed using historical shares and one-third using the Commission's relativities; in 1996-97, the distribution was one-third historical shares and two-thirds relativities. In 1997-98, identified road grants were fully distributed on the basis of the relativities underlying financial assistance grants. The level of grants is shown in Table 1.

Table 1: State identified road grants ($ million)

Year

NSW

VIC

QLD

WA

SA

TAS

NT

ACT

Total

1991-92

4.5

2.6

6.0

0.0

8.7

5.2

12.1

0.0

39.1

1992-93

4.6

2.7

6.1

0.0

8.9

0.0

8.3

0.0

30.6

1993-94

51.8

51.6

31.5

21.7

11.4

4.4

1.9

0.7

175.0

1994-95

103.6

103.2

63.0

43.4

22.8

8.8

3.8

1.4

350.0

1995-96

110.0

99.0

68.0

43.0

28.0

11.0

9.0

3.0

371.0

1996-97

113.4

93.2

71.7

40.9

32.6

13.4

13.9

4.3

383.4

1997-98

114.9

84.4

73.9

37.4

36.7

15.2

19.2

5.7

387.3

1998-99

117.9

86.9

74.9

38.2

38.3

15.4

19.4

6.2

397.2

Source: Final Budget Outcome and Budget Paper No. 3, various years.

The Commonwealth Grants Commission has pointed out that there is now 'little point' in identifying part of the general revenue pool as road grants.(10) As with local government identified road grants, State identified road grants are not subject to any formal conditions. However, in practice, the States spend the grants on roads. The House of Representatives Standing Committee noted:

Therefore, Commonwealth assistance to the States/Territories and local government for arterial and local roads is untied. There is no legal obligation on the recipient to use the funds for a particular purpose. However, the Hon John Sharp MP, as Minister for Transport and Regional Development, sought and received assurances from the States/Territories that untied road funding will be used for road purposes at the State/Territory level.

The committee considers that it is not sensible, on the one hand, to provide general purpose (untied) payments to other governments and then to seek assurances from those governments that the untied funding is used for road purposes. In a de facto sense, untied funding for roads has become tied funding for roads but without appropriate steps being taken to support the change.(11)

To remedy this, the Committee recommended that:

... untied road funding paid to States/Territories and local government be paid as tied block grants and maintained in real terms.(12)

In the Committee's view, this would achieve the Commonwealth's intention that the funds be spent on roads but would allow the States flexibility as to the projects on which they wish to spend the funds. The Committee did not envisage Commonwealth involvement in the allocation of funds to or approval of specific road projects.

Road Programs

As noted, the Commonwealth has funded a range of different programs including urban transport. The following describes these programs and some of their features.

Provincial Cities and Rural Highways Program

The Australian Centennial Roads Development Amendment Act 1990 established the Provincial Cities and Rural Highways (PCRH), the Black Spot and the Urban Public Transport programs, which were financed from consolidated revenue. [This Act also changed the title of the ACRD Act to the Australian Land Transport Development Act 1988) (the ALTD Act)]. The focus of the PCRH program was roads of major economic significance outside the capital cities. It thus complemented the national arterials program under which funding was directed into major metropolitan roads. The criterion for providing funds under the program was that the 'construction of a road or a proposed road will yield sufficient economic return to justify the incurring of the costs of construction'. Funding was provided for three years-1990-91 to 1992-93-and some $266 million was spent under this program, although some of the PCRH funds were used to upgrade mainline railway tracks.

Black Spot Program

On 5 December 1989, Prime Minister Hawke announced that steps would be taken to implement a package of uniform road safety measures across all States and Territories. The Commonwealth set aside an amount-initially $110 million over three years-which would be paid to the States if they adopted the measures. By 1 July 1990, all States and Territories had adopted the measures and the Commonwealth provided funds from 1990-91 to 1992-93 under the Black Spot program. The criterion for providing funds was that a site on a road had 'contributed to serious motor vehicle crashes involving death or personal injury'.

There was some criticism of the termination of the program because many of the projects had high benefit-cost ratios. In 1995, the Bureau of Transport and Communications Economics evaluated the Black Spot program. The Bureau concluded:

Overall, the decrease in injury crashes at the sample sites was over two-and-a-half times what could have been expected on the basis of general comparable crash trends in various jurisdictions over the relevant period. Fatalities fell by one-third, people hospitalised by two-thirds, and the number in need of medical treatment by one-half ...

The results of the evaluation strongly suggest that the Program has achieved its aim of improving safety at locations with a history of crashes involving death or serious injury.(13)

The Howard Government re-introduced the Black Spot program in the 1996-97 budget, budgeting $36 million-in real terms-for each of the years 1996-97 to 1999-2000. The then Minister for Transport, the Hon. John Sharp MP, stated on 18 November 1996 that project proposals would be considered by community consultative panels to be established in each participating state, and that the program would focus on regional roads.

Urban Public Transport Program

In March 1990, the Minister for Land Transport announced that over $200 million would be spent over the next three years to improve urban public transport. Under the Australian Centennial Roads Development Amendment Act 1990, expenditure was for capital projects which were likely to result in a reduction of the traffic on, or the wear and tear affecting, any road in an urban area or was likely to provide other benefits. The primary aim of the program was to encourage motorists to switch to public transport, and was designed to benefit commuters in various locations, especially the outer suburban fringes of major cities. The program ran for three years-1990-91 to 1992-93-and $221.6 million was spent. With the termination of the Urban Public Transport program, there has been no explicit Commonwealth funding of urban public transport, although funds flowed into urban public transport under the Building Better Cities program, which the Howard Government ended.

One Nation Statement

The One Nation statement provided additional grants under the various categories of roads in the ALTD program. Additional grants were also made under the August 1992 Working for the Future statement. The One Nation statement also extended the National Highway System by adding routes based on the existing Sturt (Sydney-Adelaide) and Newell (Melbourne-Brisbane) highways, and provided grants for major rail projects, mainly to upgrade the standard gauge network and improve port access, although some funds also benefited urban passenger transport.

Roads of National Importance

As from 1 January 1994, the Commonwealth accepted specific responsibility only for the National Highway System on an on-going basis. The incoming Howard Government decided that from March 1996, it would also provide assistance for specific projects under its Roads of National Importance (RONI) program. This decision was based on the recognition that roads outside the National Highway System also produce national benefits. The criteria for considering nomination of a road as a RONI include its contribution towards trade, international competitiveness and integration of transport and land use, and whether it will generate large net social benefits. RONIs are thus determined on a case by case basis and are not a defined network of roads.

Funding for RONI projects is generally taken from the pool of funds that would otherwise be available for National Highway System works. The Commonwealth funds RONIs jointly with the States and Territories. (In contrast, the Commonwealth pays for all construction and maintenance work on the National Highway).

The main RONI is the Pacific Highway, which links Sydney and Brisbane via a coastal route passing through major centres such as Newcastle and Kempsey. The Commonwealth has initiated a 10-year upgrading of the Pacific Highway that includes a $750 million (in 1996 dollars) funding commitment. That funding will be provided on condition that the Queensland and New South Wales governments match the Commonwealth's contribution on a dollar for dollar basis and maintain their existing financial commitments to the Highway as follows.

Table 2: Funding of the Pacific Highway Reconstruction

Commonwealth Government (joint)

$750 million

States (joint)

$750 million

New South Wales (State)

$1000 million

Queensland (State)

$600+ million

Total

$3.1 billion

Source: Department of Transport and Regional Services, http://www.dot.gov.au/land/pachwy/pachwy.htm

Other Issues in Road Funding

Funding Levels

Commonwealth road related expenditure since 1988-89, deflated by the Bureau of Transport Economics road construction price index, is shown in the following table.

Table 3: Estimated real Commonwealth road expenditure (millions of 1990-91 dollars)

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1376.9

1460.2

1595.9

1706.7

2119.7

1492.5

1444.5

1496.9

1498.4

1503.5

The table shows that expenditure rose sharply from the beginning of the 1990s to a peak in 1992-93. Funding fell sharply in 1993-94, reflecting the transfer of $350 million annual funding from specific purpose payments to general revenue assistance to the States, the cessation of the Black Spot, Provincial Cities and Rural Highways, and Urban Public Transport programs, and reduced funding from the One Nation programme. The table also shows that real expenditure in the second half of the 1990s was lower than in 1990-91. Additional data on Commonwealth road related expenditure are set out in Appendix 1.

It is often argued that the level of Commonwealth road funding should rise substantially. Critics point to the decline-from around two per cent of gross domestic product in 1960 to half a per cent in 1996-in public investment in roads. Critics also point out that actual and forecast levels of national highway funding fall below the 'needs' estimated by the Bureau of Transport and Communications Economics (BTCE) and the Department of Transport and Regional Development.(14) Indeed, the House of Representatives Committee expressed concern that:

... the recent level of national highway funding, and the forecast level of funding in the Budget papers for the next three years, is significantly below the funding needs estimated by the BTCE and the Department of Transport and Regional Development.(15)

As noted, funding for RONI projects is generally taken from the pool of funds that would otherwise be available for National Highway System works. The House of Representative Committee expressed the view that RONIs should not be funded at the expense of the National Highway System.(16)

But viewed in the context of overall budgetary objectives, especially the intention of both major political parties to limit the size of the budget deficit, and competing demands for road funding with expenditure for other purposes, major increases in road funding seem unlikely. In particular, within a given transport budget, road competes with other transport modes, especially rail, for funding, although Commonwealth funding of national roads exceeds that of rail by a considerable margin. For example, Commonwealth spending on national roads is budgeted at $767 million in 1999-00 alone, compared with $250 million over four years on the national rail track.

Hypothecation

It is sometimes argued that a greater proportion of the revenue raised from transport related taxes-which exceeds total expenditure on roads-should be spent on roads. In particular, it is argued that more of the revenue from fuel excises should be spent on roads. For example, the Australian Automobile Association:

... continues to express the serious concern of the motoring public over the 'decoupling' of motorists' taxes from government spending on roads and transport facilities. Increasingly, motorists are a general target for taxation-receiving little in return for what they pay.(17)

But this hypothecation (earmarking) argument is questionable. First, the level of annual Commonwealth road funding is determined in the overall budget context without reference to particular taxes, and roads have to compete with other forms of expenditure. Indeed, as discussed below, uncertainty over the level of funding arising from this annual approach led the House of Representatives Standing Committee to recommend a rolling three year funding program. Second, there is no necessary relationship between the use of taxes and their sources. Third, the Commonwealth Department of Finance and Administration has acknowledged that fuel excises-the main form of motor vehicle taxes and charges-are principally a revenue raising measure.(18) When the diesel fuel excise was introduced, for example, it was hypothecated to road expenditure. But these arrangements have been progressively diluted to such an extent that the revenue from the diesel excise and other excises is paid into consolidated revenue and hence available for general government outlays. Finally, hypothecation is generally not a feature of road funding in other countries. For example, the European OECD countries levy a range of vehicle taxes, road use fees, tolls and fuel taxes, but they are aimed largely at recovering the cost of road use and raising revenue.(19)

However, the ALTD Act requires that some of the revenue from fuel excise be hypothecated to fund the Commonwealth's road programs. The House of Representatives Standing Committee recommended that the hypothecation provisions be removed to dispel the notion of a link between the amount of fuel excise revenue and the level of road funding.(20)

Identified Road Grants

The level of identified road grants paid to local governments reflects the treatment of general purpose assistance. Such assistance is provided under the Local Government (Financial Assistance) Act 1995. The Act provides for general purpose assistance to be increased each year by an escalation factor that reflects the percentage increase in the States' financial assistance grants pool. That, in turn, reflects indexation for population growth and the consumer price index. Several aspects of these arrangements are worth noting.

First, while indexation of grants in real per capita terms places a 'floor' under the value of identified road grants, indexation does not contain any allowance for general economic growth. Hence the value of these grants will fall over time as a percentage of gross domestic product. Second, one can question the use of the consumer price index to index road grants. While the consumer price index is widely used to index a diverse range of payments and excise taxes, it could be argued that a more appropriate index would be a road construction cost index such as that compiled by the Bureau of Transport Economics. The indices may diverge. For example, the road construction cost index rose by 1.75 per cent between 1995-96 and 1997-98 whereas the consumer price index rose by 1.35 per cent over the same period.

Under the May 1999 agreement with the Australian Democrats, negotiated in the context of the A New Tax System legislation, the Howard Government undertook to retain responsibility for the payment of financial assistance grants to local government (the Government had intended that this responsibility be transferred to the States). It remains to be seen what changes, if any, the Commonwealth intends to introduce to the system of identified road grants paid to local government.

Funding Certainty

Currently, the Commonwealth determines the level of road funding on a year-by-year basis. The States have frequently complained that the unpredictability of and fluctuations in funding levels limit their ability to plan. Evidence presented to the House of Representatives Standing Committee inquiry led it to conclude that uncertainty about Commonwealth road funding levels is impeding the ability of the Commonwealth and the States and Territories to undertake long-term planning, and inhibits the efficient operation of the construction industry, resulting in higher road construction costs. For example, representatives of the road construction industry claimed that fluctuations in the level of funding inhibit investment in efficient, expensive equipment, and State governments claimed that annual allocations make the process of planning more difficult, given the lead times in planning projects. The Committee recommended that the Commonwealth would provide greater certainty by adopting a guaranteed funding approach for a rolling three-year period.

Concluding Comments

The level of Commonwealth road funding has long been a contentious issue; interest groups such as the Australian Automobile Association often complain that Commonwealth funding levels are inadequate, a claim which has been invariably supported by State governments. The Federal/State interplay on Commonwealth road funding policy has been further complicated by the fact that while, in theory, the States can use untied 'identified road grants' for any purpose, in practice, the Commonwealth has sought assurances that the States spend the funds on roads.

This paper suggests that arguments in support of the hypothecation of more of the revenue raised from motor vehicle taxes towards roads spending are questionable. It observes that the level of Commonwealth road funding is determined in the overall budget context without reference to the revenue raised from particular taxes, and expenditure on roads competes with other expenditures. Indeed, the House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform has recommended that the hypothecation provisions in the Australian Land Transport Development Act 1988 be removed to end the notion of any link between fuel excise revenue and the level of road funding.

Nevertheless, there is substance to the claim that the existing road funding arrangements impede the ability of the Commonwealth and the States to undertake long-term planning, and this in turn increases road construction costs. There is a good case for the Commonwealth to provide greater certainty by adopting a guaranteed funding approach for a rolling three-year period.

Endnotes

  1. References to the States should be taken to mean the States and Territories.

  2. D. James, 'Commonwealth Road Funding Since 1980', Background Paper, no. 35, Department of the Parliamentary Library, Canberra, 1993.

  3. M. Kingston, 'More toll roads for national network', Sydney Morning Herald, 18 November 1999.

  4. House of Representatives, Standing Committee on Communications, Transport and Microeconomic Reform, Planning not Patching, October 1997.

  5. The ACRD provided, for the first time, grants to the ACT as well as the States and the Northern Territory.

  6. The ALTP-which was established under the Australian Land Transport (Financial Assistance) Act 1985-began on 1 July 1985 and provided funds for land transport over a five-year period. Most of the funds were provided to the States and the Northern Territory for expenditure on roads, but funds were also available for land transport research, road safety and administrative costs. (Funds were also available for railway improvement although the use of funds for rail projects was minimal). The ALTP was funded by payments-into the Australian Land Transport Trust Fund-of a share of the excise on petrol and diesel. The Commonwealth introduced the ABRD in 1982 to develop sections of the road system to a higher standard by 1988, the bicentennial year. The ABRD was financed by a surcharge on the excise on petrol and diesel, which was paid into the Australian Bicentennial Road Development Trust Fund. The program provided that up to 25 per cent of total funds available for urban arterial roads over the life of the program, could be redirected to urban public transport capital projects, where it could be demonstrated that such expenditure would reduce traffic or wear and tear on the urban arterial road system.

  7. The Commonwealth Bureau of Roads originally identified the national highway system in the early 1990s.

  8. July 1991 Special Premiers' Conference, record of proceedings.

  9. House of Representatives, op. cit., paragraph 2.21.

  10. House of Representatives, op. cit., paragraph 4.28.

  11. House of Representatives, op. cit., paragraphs 2.8 and 2.9.

  12. House of Representatives, op. cit., paragraph 4.40.

  13. Bureau of Transport and Communications Economics, Evaluation of the Black Spot Program, Report 90, 1995.

  14. House of Representatives, op. cit., paragraph 4.138. The BTCE estimated that the backlog in 1998-at 1997-98 prices-of spending on the non-urban sections of the national highway was in the order of $2.6 billion.

  15. House of Representatives, op. cit., paragraph 4.160.

  16. House of Representatives, op. cit., paragraph 3.153

  17. Australian Automobile Association, Motoring Directions, Winter 1995, issue 3, volume 1, page 7.

  18. Productivity Commission, Progress in Rail Reform, Draft Report, 30 March 1999, p. 208.

  19. OECD, Liberalisation and Structural Reform in the Freight Transport Sector in Europe, OECD, Paris, 1997.

  20. House of Representatives, op. cit., paragraph 4.113.

Appendix 1: Commonwealth Road Expenditure by Program and Road Category 1987-88 to 1999-2000.

COMMONWEALTH ROAD EXPENDITURE BY PROGRAM AND ROAD CATEGORY 1986-87 to 1998-99

($ million)

Item

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99a

1999-00a

ROAD PROGRAM DISTRIBUTION

Grants

Australian Bicentennial Road Development b

431.0

248.3

..

..

..

..

..

..

..

..

..

..

..

Australian Land Transport Program

763.3

425.6

..

..

..

..

..

..

..

..

..

..

..

Australian Land Transport Development c

..

518.6

1335.1

1381.4

1092.3

1451.2

1014.8

816.1

831.3

801.2

814.9

874.1

766.9

Urban Public Transport

49.2

24.7

..

42.2

86.2

93.2

..

..

..

..

..

..

..

Federal Interstate Registration Scheme (FIRS)

4.2

10.8

17.1

14.5

15.9

17.0

20.3

23.6

29.3

20.1

17.8

20.3

15.3

Provincial Cities and Rural Highways (PCRH)

..

..

..

87.6

94.5

83.5

..

..

..

..

..

..

..

Black Spots Program

..

..

..

50.0

60.0

160.1

..

..

..

36.0

35.6

37.4

37.8

Research

4.1

4.3

5.8

9.2

9.8

9.3

8.8

9.1

6.8

8.3

6.0

5.5

4.4

Other d

..

..

..

11.0

361.7

362.6

508.3

686.8

734.2

757.3

761.4

774.4

797.1

TOTAL

1251.9

1232.3

1358.0

1595.9

1720.4

2176.9

1552.2

1535.5

1601.7

1622.8

1635.8

1711.7

1621.5

ROAD CATEGORY DISTRIBUTION

National roads

549.2

486.6

523.2

554.2

656.9

868.2

786.2

816.1

831.3

801.2

814.9

873.7

766.9

Arterial roads e

391.9

433.4

508.8

503.4

435.5

583.1

403.6

350.0

371.0

383.4

391.0

397.1

408.8

Local roads f

253.2

272.6

303.1

323.8

352.7

362.6

333.3

336.8

358.0

373.9

370.4

377.7

388.3

Unallocated g

57.6

39.7

22.9

214.5

275.3

363.0

29.1

32.6

41.4

64.4

59.4

63.2

57.5

TOTAL

1251.9

1232.3

1358.0

1595.9

1720.4

2176.9

1552.2

1535.5

1601.7

1622.8

1635.8

1711.7

1621.5

.. Not applicable

  1. Estimates. Figures were sourced from 1999-2000 Federal Budget papers and DoTRS records.
  2. Includes expenditure on urban public transport.
  3. PCRH and Black Spots Programs funded through the ALTD Program (levels excluded from total).
  4. Includes Commonwealth funding for urban public transport in 1990-91, 1991-92 and 1992-93. Also includes 'identified road grants' and 'identified local road grants' paid to the states and local government respectively for roads.
  5. From 1 January 1994 Commonwealth funding has been provided to the states as identified funding for arterial roads.
  6. From and including 1991-92, Commonwealth funding has been provided to local governments as identified funding for local roads.
  7. Includes FIRS expenditure, sundry expenditure such as road safety, and expenditure for programs such as Black Spot, Provincial Cities and Rural Highways, and Public Transport.

Appendix 2: National Highway System

Road Map

 
 

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