Toll roads in Australia and elsewhere
Identifying the issues in the discussion
Some discussion of toll roads is confused because there are a lot of
variables, which are not necessarily related, being discussed at the same time.
Further, from the committee's point of view, it is important to remember
that transport is a state responsibility. The Commonwealth's involvement is
largely through funding of infrastructure. Its responsibilities for the
environment, health and general living standards (through social security and
taxation), supervision of corporations and consumer protection also give it
specific interests in the issues raised by toll roads.
Roads versus other solutions
First, there is the question of building roads versus other transport
solutions. The objective of building a road is to improve transport and,
possibly, the urban environment. In a perfectly logical approach, the transport
problem would be examined, and all possible solutions would be compared on the
basis of costs and benefits. The costs would include financial costs to
government, to businesses and to individual citizens over the life of the
solution, and environmental costs in terms of pollution and urban amenity.
Similarly, the benefits would be assessed over the life of the asset and would
include improvements in convenience and comfort as well as economic benefits.
Assessing the benefits and costs of transport infrastructure also
requires a long time frame. For example, building new motorways frequently
results in more car trips, because the new road reduces the cost of a trip, in
time and possibly discomfort in the form of driving stress. The traffic from
this induced demand puts further stress on other, smaller roads at the
beginning and end of the motorway. The road may alter land uses: with good
transport access it becomes convenient to establish factories in the outer
suburbs. The new road may initially be a more attractive alternative to public
transport, which thus becomes less economic with lower patronage. And eventually
the volume of traffic on the new road may build to the point where the problem
of congestion is as bad as it was at the time of the decision to build it.
For a given transport problem there could be a rail alternative that
needs to be compared to a road; or public transport services which reduce
congestion and obviate the need for new building. Many arguments against toll
roads are in fact arguments against building roads as solutions.
Tolls versus more general road user
Second, the discussion of tolls should be seen in the context of road
user charges more generally. The concession holder for a toll road charges
tolls on a particular section of the road network because it can, on the basis
of a commercial agreement with a government. Fuel excise and vehicle
registration charges function to some extent as road user charges. There are
arguments for charging for the use of roads more generally, and this is a
matter of considerable policy discussion at present. For example:
The Department of Infrastructure and Regional Development (DIRD)
has published a paper, Independent price regulation of heavy vehicle charges,
as part of a COAG process on heavy vehicle road reform.
DIRD is also participating in cross-jurisdictional investigation
of cost reflective pricing for light vehicles.
On 24 November 2016 the Prime Minister announced that the
Government would 'appoint an eminent Australian to lead extensive community
consultation on the costs and benefits of road pricing for all vehicles'.
(This process has not begun yet.)
User charges for public services
It is important to specify the objectives of charging for road use. A
road is a part of a transport network which includes other roads as well as
train routes and possibly cycle and walk ways. It is a major piece of physical
infrastructure which, because of its size and social function, necessarily
involves government in its provision. For several centuries it has been assumed
in the developed world that providing roads is a core function of government.
Governments provide many services. Some are free to users: for example,
the Australian Broadcasting Commission, most parks, most policing and to a
great extent public schools. Some, such as many medical services, require a
partial contribution which does not purport to cover the whole cost. Some,
especially those which cater to a specific identifiable group, including
regulatory services and services where the government is operating in a
commercial market, are intended to recover their costs in full.
User charging may have various rationales. Cost recovery for a very
specific service may simply be fair, or an element in the costs of doing
business. Sometimes it makes sense to use a service to generate revenue,
because funds are always scarce and in particular cases a charge will not cause
an appreciable reduction in demand. In other cases, the purpose of a charge is
precisely to reduce demand, so that people will not over use a service. In
economics, a market price in certain circumstances will drive the efficient
level of demand for and supply of a good or service.
On the other hand, a decision not to charge for a service may be due to
a perception that the service provides external benefits—benefits over and
above what might be captured in a price. For example, it is generally agreed
that the benefits to the whole community of a literate population make a case
for free public education. Or it may be impossible to exclude people from using
a service, such as the ABC, so it does not make sense to charge for it. Or one
person's use of a service, such as a park, may have no impact on another
person's use, so there is no cost involved. Or the benefits of a service may be
so widely spread that in effect all taxpayers are users, so that it can just as
effectively be funded from general revenue.
User charges may be complex where a network is involved. Telephone calls
are charged to the maker of the call, but may be of equal benefit to the
receiver. This is particularly relevant to a road, which is part of a complex
Some of the discussion of toll roads confuses the original
rationale—that users of the particular section of road will pay for its
construction—with other variables such as commercial returns and congestion
Separating the decision to build a
road from the method of financing it
Because a road is a major piece of infrastructure with wide social
functions, the construction of which will cause significant disruption, the
decision to build a major road is arguably one for government. It would
normally be a result of a long term city planning process, and would probably
involve consultation with communities affected. The decision to build would
arise from the calculation that building a road will result in a net benefit
for the community. Questions of how to pay for it would logically follow the
decision to build. As discussed later in this report, the community will pay
for the road. The question is whether it is to be financed through taxes or
tolls or some other method.
Many features of toll roads in Australia's cities are at least partly
the result of decisions to finance the project through private involvement,
often in a public-private partnership or PPP. To allow the private operator to
recover the cost through tolls is a further, conceptually separate, decision
from the decision to use private finance.
Some issues in the financing of infrastructure
Attracting private capital
Infrastructure Australia distinguishes between funding and financing
infrastructure. Financing is the method of raising the money, which is paid
back through funding from user charges or taxes—and only from them.
However, the building and operation of infrastructure may be financed in a
variety of ways.
Since the 1980s, governments have become progressively more wary of
debt. At the same time there has been (real or imagined) pressure to reduce
taxation. Governments have sought ways of financing large projects which do not
involve government borrowing, and which get the cost 'off the balance sheet'. The
answer to this problem has been to involve private capital in the building of
There is some evidence that these trends are being reversed. The
Commonwealth Treasurer, Mr Scott Morrison, in April 2017 made a distinction
between 'good debt' and 'bad debt', and said that government borrowing to
create future assets could be acceptable and even desirable.
Meanwhile, the Opposition has made several policy announcements which
foreshadow an increase in tax revenue.
In general, governments can borrow more cheaply than private sector
entities. They also do not need to generate returns to shareholders. Given that
transport departments are already operating, it is possible that they have
lower administration costs. So direct provision by governments could involve
On the other hand, the huge stock of superannuation assets available for
investment suggests that attracting private capital to profitable and stable
investments could be worthwhile to both government and investors. Public use
infrastructure provides many examples of such investments.
There are several ways that private capital can be involved. Some
examples are the sale of infrastructure bonds (to raise a general fund, or to
finance specific projects) which then generate a return as interest;
build-operate-transfer schemes by which the government takes ownership after
the private partner has recouped its capital plus a return; and the sale of a
right to raise funds from an asset. From information later in this chapter it
is apparent that several major toll road projects began as the second type of
scheme, the intention being to build-own-operate, but failed and were taken
over essentially as the third type, a toll concession.
One principle which should guide the decision as to whether the public
or the private sector should undertake an activity is that risk should reside
with the party best able to manage it. Road provision involves project risks—acquiring
the land, getting the road built—and patronage, or traffic, risks. In early
discussions of toll roads it was argued that the private sector was best placed
to manage these risks. Following failures which were largely due to
over-optimistic traffic forecasts, this can no longer be assumed.
When the private sector finances infrastructure, it allows governments
to postpone paying for the asset until it is in use, and to have the people who
use the asset pay for its building and its maintenance through tolls. This
appearance of a 'user pays' arrangement with no apparent cost to government has
been criticised as based on a perception:
...that the government is independent and separate from the
residents it’s meant to be governing and representing.
In the past, revenue for road building has been raised through road user
charges including vehicle registration and fuel excise. Revenue from fuel
excise has been falling consistently over the last decade. This trend can be
expected to continue, largely because of better fuel efficiency of vehicles and
the increase in alternatively powered vehicles like electric and hybrid
vehicles. Even though these funds are not formally hypothecated, such a decline
will add pressure for governments to find alternative sources of revenue to
Tolls to finance roads
The logic of using tolls to fund road construction is reasonable. The
use of the price mechanism can theoretically drive optimal provision and
consumption of goods or services. However, this basic economic theory applies
to markets where there is no constraint on supply, and where there are
alternative products to meet demand. Once either of those two conditions is
unmet, the conditions for an optimal price change.
Sometimes there are constraints on supply, including limited or no
alternative routes. In particular, heavy vehicles are often prevented from
using suburban streets. Or charging a toll may direct traffic on to suburban
streets which are less efficient carriers of the traffic. Once a road has been
built, especially a major multi-lane motorway, it is efficient to encourage
people to use it. One theoretical paper concludes:
...economically optimal pricing in its purest form leads to
major under-recovery of capital and maintenance costs for most of the road
In many cases toll rates are determined in advance, with an agreed
maximum rate of increase. But in fact the benefit to the user of the toll road
changes over time: usually it increases as the volume of traffic in a city, and
the congestion on alternative routes, increases.
Tolls tend not to be simple user charges. First, in several cases, new
roads have been funded by extension of the concessions on existing roads.
Second, the difference in tolls between roads within a city does not reflect
differences in the cost of provision.
It may simply reflect differences in the deal negotiated. Third, the benefit of
a road does not accrue only to the person who drives on it. An employer whose
work force can use a new road to get to work may benefit from the road even
though she never travels on the road, and never pays a toll. Further, when a driver
pays to use a toll road, she reduces the congestion on alternative minor roads
(conferring a benefit on users of them for which they do not pay). But she may
increase congestion on roads beyond the paid-for section, imposing a cost which
is also not a component of the toll. A particular tolled road is useful only if
there are other roads leading to it. The transport system is a network, not a
collection of individual roads.
Road user charges can be used for broader purposes such as demand
management. But such charges have to be applied with the whole network in mind.
Submissions from areas dependent for access on toll roads have made this point. Professor
David Hensher believes that only the state has any incentive to think in terms
of the network. But, he argues, governments, by agreeing to long term tolling
contracts, have given away the pricing control that would have allowed them to
optimise charging on the network.
The Bureau of Infrastructure, Transport and Regional Economics (BITRE)
appears to support this argument, concluding in its Introduction to Road
The main message of this paper is to challenge ideas that
economically efficient prices for roads in general are associated with cost
recovery, and the roads could be managed efficiently on a commercial basis
without a high degree of regulation.
The use of tolls as a method of financing infrastructure is not only a
way of postponing the cost to government. Some toll road projects have involved
an up-front payment to government for the right to build and operate the road.
Toll roads in Australia
There are 16 toll roads in Australia: eight (41 per cent of total toll
road length) in New South Wales, two (25 per cent) in Victoria and six (34 per
cent) in Queensland. BITRE distinguishes three categories of toll roads:
bridges or tunnels crossing barriers, like the Sydney Harbour Bridge and the
Go-Between Bridge in Brisbane; roads incorporating tunnels which are intended
to ease congestion on the surface, like the Sydney Cross-City Tunnel and the
Brisbane Clem7; and intra-city links, some of which, like the Sydney M7, the
Logan Motorway in Brisbane, and the Melbourne Eastlink, are over 35 kilometres
long. This information is summarised in the table.
Most toll roads have been developed as public-private partnerships, with
mixed success. Failures have generally been due to exaggerated forecasts of
traffic volumes: this is often referred to as 'optimism bias'. This has been
particularly true for the second type of freeways, those involving tunnels.
As several companies developing toll roads have failed, there has been
an increase in concentration of ownership. Today Transurban operates, and has
at least a majority ownership of, 13 of the 16 toll roads.
Most of the toll roads use fixed tolls. The exceptions are the Sydney
Harbour Bridge and the Sydney Harbour Tunnel, which vary by time of day, and
the Sydney M7, which has distance-based tolling. (WestConnex, including the new
M4 lanes opening now, will also use distance based tolling.) Tolls for
cars vary from $2.70 for the 38.7 kilometre Logan Motorway to $8.70 for the 22
kilometre Melbourne CityLink. Tolls for trucks for those roads are $7.30 and
Four more major projects are currently proposed or in their early
stages: Toowoomba Second Range Crossing, NorthConnex and WestConnex in Sydney,
and the Westgate Tunnel project in Melbourne. Three major upgrade projects are
proposed in Brisbane.
All of these except the Toowoomba Second Range Crossing are Transurban
Table: Toll Roads in Australia by Type
|| Original owner
|| Majority Owner
||NSW Dept. of Public Works
Pty Ltd & Kumagai Gumi
||Kumagai Gumi (50%)
Holdings Pty Ltd
||Brisbane City Council
or roads with tunnels
|5. Lane Cove
||Brisbane City Council
links - short
Motorway Pty Ltd
| - long
||Hills Motorway Pty Ltd
Sydney Orbital Pty Ltd
||Interlink Roads Pty Ltd
||Horizon Roads Pty Ltd
||Horizon Roads Pty Ltd
||Logan Motorways Pty Ltd
Source: Bureau of
Infrastructure, Transport and Regional Economics, Toll Roads in Australia
Most tolls are collected electronically. The systems for collection vary
among the roads and from state to state. Most involve an electronic sensor
linked to an account and carried in the vehicle, but there is also provision
for reading of vehicle number plates. There are several providers of tolling,
and they have roaming arrangements whereby tolls can be paid by interstate
drivers before or after a trip (within 48 hrs before incurring a fine) with one
account working for all the freeways in a city.
However, as discussed in Chapter Four, there are considerable equity
issues that impact those who use the roads less regularly, for example
interstate visitors. Many operators require interstate drivers to register
online, and there are issues regarding adequate disclosure. For example, in the
case of Transurban, a $1.50 application fee is charged plus a 0.75c vehicle
matching fee for each tollway accessed on top of the toll charge itself.
The Australian Competition and Consumer Commission has suggested that, while
there is not a competitive market in toll roads, there is a competitive market
in tolling service provision.
Toll roads in other countries
In comparing Australia with other countries it is important to remember the
interaction of tolls with other road user charges, aside from tolls. These
include vehicle registration charges and fuel excise.
The US has had a long history of toll roads, including an infrastructure
boom before World War II financed largely by tolls. However, the 1956
legislation for a national highway system was based on tax funding. More
recently, because of a growing infrastructure deficit and a perceived shortage
of public funding, there is increasing interest in financing building by tolls,
with a large number of federal demonstration and pilot programs.
In the 10 years from 2005 to 2015, toll road distances increased by about 18
In 2005, the state of Indiana sold a 75‑year tolling
concession on the East–West Toll Road in order to raise funds for further road
building. It was bought by a joint venture between Cintra, a Spanish
construction firm, and Macquarie Atlas Roads for US$3.8 billion. This was
$1 billion more than the next bid, and proved to be based on unrealistic
traffic forecasts. The impact was borne by the buyers and their financiers.
Canada has not made much use of tolls, although it has relied heavily on
PPPs to build roads.
England and Wales
Transport is a devolved responsibility in the United Kingdom so Scotland
and Northern Ireland operate separately. There is very limited use of toll
roads in England and Wales, although the government has the legislative power
to impose tolls on major roads, and has used PPPs for road building. There has
been some use of shadow tolls, where the government pays a private operator a
fee per vehicle.
France makes extensive use of tolls: about three-quarters of highways
are tolled. However, in 2014 the French government announced the introduction
of an Eco-charge on heavy goods vehicles on non-tolled routes and installed
gantries for collecting it, only to abandon it in the face of opposition from
the transport industry. Tolls are distance based and vary with type of vehicle.
In the absence of tolls on minor roads, local governments are beginning to
force heavy vehicles onto the (main) tolled routes by regulation.
Germany has not in the past used tolls. Legislation has been passed in
the lower house of parliament to impose tolls on autobahn routes from 2019. In
effect they will be a tax on foreign users, because German drivers who pay
annual registration will have their tolls refunded. There has been strong
opposition within the EU to this measure, which has been debated for several
Italy has an extensive system of toll roads. In 2009 administration of
the national highway system was transferred from regional governments to the federal
government. Of the tolls collected, 2.4 per cent is paid to the government and
a proportion of this is devoted to road maintenance. Italy has also made use of
PPPs, sometimes in conjunction with tax concessions.
Tolling is fairly widespread, and has enabled rapid expansion of the
road network in the last 20 years. Some toll roads are funded by loans to local
governments and tolls are directed to repaying the cost of building the road.
Some are privately commercially operated. Tolls may be collected for up to 20
years on government roads and up to 25 years (with possible extension to 30
years) on commercial roads. In some cases the right to collect tolls on
government roads is assigned to a private operator.
The Japanese expressway system consists mostly of toll roads. The
system was originally intended to become toll free as soon as the national
expressway network was completed and construction debts repaid, partly from
tolls. Highways were constructed by statutory highway corporations from the
1950s. However, the corporations accumulated huge debts and were reorganised in
the early 2000s, with a government body to hold the existing assets, and six
private companies to build new roads—and collect tolls. The private companies
pay the government body a lease fee which depends on the volume of traffic, so
the risk remains with the government.
Some regions of Spain use toll roads extensively, and many toll roads
are controlled by local authorities. The logic of planning is that it is
possible to travel around cities on good alternative routes without using
tolled roads, but they are harder to avoid on intercity routes.
Transurban's submission estimates that 0.5 per cent (240 kilometres) of
Australia's motorways are tolled, compared with 3 per cent of China's and the
US's, 13 per cent of Japan's and 18 per cent of Spain's.
Tolls vary widely, both within and between countries. Some examples of
national average tolls (in US currency) are: Japan, 24 cents per kilometre;
France 11–13 cents per kilometre; Italy 7 cents per kilometre.
Tolls in Spain are about 10.5 cents per kilometre.
Navigation: Previous Page | Contents | Next Page