Rob Dossor, Economics
Revenue from the primary road user charge, fuel excise, has been falling for some time due mostly to improvements in vehicle efficiency.
The pressure to secure other revenue streams to replace fuel excise presents Governments with an opportunity to design a system to replace existing road related revenue charges with one that solves the revenue decline and better reflects individual driver's use of roads, with the added potential to address traffic congestion.
Decline in road related revenue
Public sector road-related revenue primarily comprises
state-levied vehicle registration fees and stamp duty and the Commonwealth-levied
fuel excise and GST. Although none of these charges are hypothecated to road
funding, they form a significant part of total government revenue.
Fuel excise is the largest source of road-related
revenue but it has been falling for some time.
According to the Bureau
of Infrastructure, Transport and Regional Development,
in 2013–14, public sector road related revenue totalled $27.8 billion. Fuel
excise contributed about $10.8 billion or 39 per cent, down from about
44 per cent in the early 2000s.
The decline in fuel excise revenue is attributed to
improvements in fuel efficiency of conventionally powered vehicles and the
increase in alternatively powered vehicles like electric and hybrid vehicles.
This trend can be expected to continue.
This decline will add pressure for governments to
find alternative sources of revenue.
However, it also presents opportunities to design better
systems for charging for road use that more closely align with the use that
individuals make of roads—road use being a rare exception to the general
proposition that the more we use of something, the more we pay. A feature of
stamp duty and registration charges, in particular, is that they are fixed and
do not vary with the extent to which a person uses roads.
Absence of strong price signal
A system that puts a price on road use offers a tool
that can be used to address public policy issues such as traffic congestion.
It is estimated
that during the morning peak period, over 20 per cent of Sydney road users
travel for discretionary reasons—for example, shopping, recreation or other
personal reasons—rather than for non-discretionary work or educational
purposes. In the afternoon that rises to 39 per cent.
At the same time, there are no strong price signals
to provide people with an incentive to modify their vehicle use by, for example,
travelling in off-peak times. Stamp duty and registration charges do not vary
at all with use. Fuel excise does vary with use, but few are aware how it is
levied (it is about 39.6 cents per litre for petrol and diesel), plus it does
not vary with time or place, so it is ineffective device for moderating
Australia recommends reform to the whole system; that is, that all existing
government road use taxes and charges be removed and replaced with ‘direct
charging that reflects each user’s own consumption of the network, including
the location, time and distance of travel, and the individual characteristics
of their vehicle such as weight and environmental impact.’
This system is also recommended by Infrastructure
Partnerships Australia, which says it ‘offers strong opportunities to
rationally price access to, and usage of, the road network—providing a
mechanism to fund network additions, fund maintenance and improve network
performance by aligning supply and demand.’ Australia motoring lobby group, the
Automobile Association is in favour of this reform.
Other policy options include the introduction of zone pricing,
particularly in cities, and corridor-specific charging.
Zone pricing (also known as a congestion charge or
tax) charges road users to use certain road systems. Zone pricing has broad
support from economists, and has been implemented in a number of places,
notably in London, Singapore and Stockholm.
Corridor-specific charging, works in the same
toll roads. A fee is levied on users who access a particular road, much the
same way as a toll road, except the corridor may be publicly, rather than privately,
Equity effects of road pricing reform
In considering these policy options, one of the
relevant considerations is the equity effect of the system. Elements of the
current system tend to operate against the interests of those lower incomes.
Fuel excise, for instance, falls more heavily on those who to drive less
efficient vehicles, commute further and have few alternative commuting options.
Fuel efficient or alternatively powered vehicles, like electric and hybrid
vehicles, tend to have initial high costs which deters low income purchasers.
The equity effects of road pricing reform are
complex and uncertain, however. For example, lower income workers—generally
having longer commuting distances, fewer alternative means of transport and
less flexible work times—would likely continue to pay higher road use charges.
However, the reduction of discretionary travel by others in peak times could
benefit those same people through reduced travel times. The interactions are
complex and deserve close consideration.
M de Percy, ‘Road users must pay, sooner rather than later’, The Conversation, blog, 16 June 2015.
Deloitte, Road pricing and transport infrastructure funding: reform pathways for Australia, Discussion paper, 2013.
Infrastructure Australia, Australian infrastructure Plan, February 2016.
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