Chapter 8 - Demand side responses
Demand side responses to reduce oil dependence have two main strands:
- improving the fuel-efficiency of vehicles; and
- reducing the demand for fossil-fuelled transport (or at least,
restraining its growth). Under this heading, the main ideas mentioned in
submissions were congestion charges to improve the efficiency of urban road
use; encouraging walking, cycling and public transport in cities; promoting
urban planning policies that reduce the need to use cars; and encouraging more
use of railways for long-distance freight.
Demand side responses can also serve other goals, such as controlling
urban congestion and pollution, and reducing greenhouse gas emissions.
Increasing the fuel efficiency of vehicles
Fuel efficiency improvements are the most important demand side measure,
because road transport dominates oil use. Modelling by ABARE suggests that more
rapid uptake of fuel-efficient transport technologies, including more efficient
engines and electric or hybrid electric vehicles, could significantly reduce
the rate of growth of oil consumption in APEC countries.
Since 1979 the fuel efficiency of light vehicle engines has improved
significantly - from about 5 to 4 litres per 100km per vehicle tonne. However
the efficiency of the Australian light vehicle fleet has improved more slowly,
as consumers have moved to larger, more powerful vehicles. During the 1990s the
fuel efficiency of passenger cars continued to improve slowly, but the fuel
efficiency of the passenger fleet as a whole showed no further improvement,
because of the increasing sales of heavier all terrain wagons (four wheel
drives). As a proportion of new light vehicle sales these increased from below
3 per cent in 1979 to 15 per cent in 2001.
The International Energy Agency, commenting on this trend, argues that 'governments
can play an important role by introducing fuel efficiency regulations':
Car manufacturers can use technological advances in vehicle
design either to increase the power and performance of the vehicle or to
improve its fuel efficiency. Often these aims conflict, with power improvements
damaging fuel efficiency. Market forces often favour increased power.
Governments can play an important role by introducing fuel efficiency
regulations to force automakers to devote new technology to improving fuel
The Bureau of Transport and Regional Economics (BTRE), writing in 2002, warned
that the growth of four wheel drive sales would continue to put upward pressure
on fleet fuel consumption:
Even if the ATW [all terrain wagon] share of new sales
stabilises immediately at 15 per cent, the current share of ATWs in the fleet
will continue to rise from the present 8 per cent, with consequent upwards
pressure on fleet fuel consumption... The desire of an increasingly affluent
population for vehicle characteristics that increase fuel consumption... has
meant that potential reductions in fuel consumption made possible by
technological advances have not been fully realised. This is a world-wide trend
in the automobile sector, and it cautions against undue optimism about realising
reductions in fuel use and emissions stemming from technological change.
As reported in 2002 (which is the most recent BTRE information), the Australian
National Average Fuel Consumption (NAFC) of new passenger cars in 2001 was 8.28
litres/100km; for all terrain wagons about 11 litres/100km, and for the light
vehicle fleet as a whole about 9 litres/100km.
Figure 8.1 – Fuel
consumption of Australian new light vehicles
ATW = all terrain
wagon. LCV = light commercial vehicle
Source: Bureau of Transport and Regional Economics,
information sheet 18, Fuel consumption by new passenger vehicles in Australia,
code on reducing fuel consumption of new passenger cars
Over the years there have been several voluntary industry codes of
practices aiming to reduce fuel consumption of new passenger cars. Codes in
operation from 1978 to 1987 and from 1996 to 2001 achieved significant
improvements, although they did not meet their targets:
Figure 8.2 – Fuel
consumption of Australian new passenger cars, and FCAI targets
Source: Pew Centre on Global Climate Change, Comparison
of Passenger Vehicle Fuel Economy and Greenhouse Gas Emission Standards Around
the World, 2004
The current voluntary code, agreed between government and the Federal
Chamber of Automotive Industries (FCAI) in 2003, calls on FCAI members to
improve the national average fuel consumption of new passenger cars to a target
of 6.8 litres per 100 km by 2010 ‘with the objective of continuing improvement
in the environmental performance of the Australian automotive industry.’
This would be a reduction of 18 per cent over the decade. It would require a
significant improvement on the trend of the decade before 2001.
Figure 8.3 – National
average fuel consumption of new passenger cars in Australia, with
future trend implied by FCAI target
Source: Federal Chamber of Automotive Industries, New
target for reduced fuel consumption, media release 15 April 2003 at
The code is more demanding than standards in the USA and Canada, but
less demanding than those in China, Japan or the European Union:
Figure 8.4 – Comparison
of fuel economy standards for new passenger vehicles.
Source: Pew Centre on Global Climate Change, Comparison
of Passenger Vehicle Fuel Economy and Greenhouse Gas Emission Standards Around
the World, 2004
The code applies to new passenger cars, not to other light vehicles such
as four wheel drives. Thus it does not touch the problem of efficiency
improvements being counteracted by the rising market share of heavier vehicles.
When the voluntary code was established in 2003 the FCAI indicated it would
develop appropriate targets for other categories of light vehicles. It appears
that this is still under negotiation with government. It is also intended that
an updated code will express the target in terms of greenhouse gas emissions
rather than fuel consumption. According to the Australian Greenhouse Office updating
the code is proving 'fairly complicated'.
It is unclear what progress has been made to achieve the code's target. The
Australian Automobile Association is concerned that 'options for improving fuel
efficiency do not seem to be adequately taken up, particularly by car
Although the Code commits the FCAI member companies to report
annually on progress with the target, the figures are not readily available and
so it is difficult to ascertain what improvements have taken place since 2003.
According to the Australian Greenhouse Office 'at this stage it is
really impossible to measure':
It is a target for 2010. The nature of vehicle fuel efficiency
changes is such that you do not see steady progress; you tend to see jumps here
and there when new models are introduced. So it is not something you can easily
monitor on a year by year basis.
It should also be noted that expressing the trend in fuel economy in
terms of fuel consumption per vehicle kilometre overstates the benefits. This
is because an improvement in fuel economy will reduce the cost of driving, and that
will encourage more driving. This 'rebound effect' is said to be typically
20-30 per cent, reflecting the elasticity of demand for travel with respect to
fuel price. At that rate a 10 per cent improvement in fuel efficiency per
vehicle kilometre would cause a 7-8 per cent reduction in fuel consumption and
a 2-3 per cent increase in distance travelled. The increased travel may have
other costs, such as congestion, which should be considered.
The Productivity Commission has argued that fleet-wide fuel efficiency targets
that go much beyond what the market would deliver would not be privately cost
effective, in the sense that consumers would value the fuel savings less than
the associated costs and constraints on vehicle choice.
The implication is that such measures need to be justified by perceived public
benefits of reducing long term oil use and greenhouse emissions. This appears
to be the rationale for the present voluntary code, which speaks of ‘improved
environmental outcomes through the progressive reduction in the carbon dioxide
emissions and fuel consumption of new passenger cars and other light vehicles.’ 
Other fuel efficiency measures
Other suggestions made in submissions to improve fuel efficiency of cars
- measures to encourage smaller and hybrid vehicles in government
and similar fleets;
- measures to encourage diesel cars, which are more expensive than
similar petrol cars but much more fuel efficient (they use 30-50 per cent less
fuel than petrol cars of similar power);
- measures to encourage smaller cars, for example by adjusting
registration fees to favour them;
- removing the concessional tariff treatment of imported four wheel
- increasing the fuel excise as an environmental measure. This
could be coupled with lower registration charges to be cost neutral overall. It
would reduce the flagfall cost of car ownership but increase the marginal cost
of a trip, and so would be expected to encourage more fuel efficient cars and reduce
the kilometres driven.
A particular point of interest was the Reva electric car, which is now
on sale in several countries. The Reva is a 13 kilowatt powered car with a top
speed of 65kph. A sample is in Australia for safety testing. The Department of
Transport and Regional Services advised that the States, when asked, did not
support registering the Reva, because of concerns about safety.
It is also sometimes suggested that improving roads to relieve urban
traffic congestion will improve overall fuel efficiency. Fuel consumption per
kilometre is up to twice that in congested conditions as in free-flowing
The committee notes the
work of the Ministerial Council on Energy in promoting the National Framework
for Energy Efficiency from 2004. Stage One of the NFEE was focussed on
stationary energy. The Ministerial Council in October 2006 resolved to consider
new energy efficiency measures.
As well, COAG has asked the Australian Transport Council (council of transport
ministers) and the Environment Protection and Heritage Council (council of
environment or related ministers), to report by the end of 2006 on incentives
to promote more fuel efficient vehicles and strategies for demand management
including increasing the use of public transport.
Measures to improve the fuel efficiency of vehicles should be supported.
The committee is concerned at the slow rate of improvement in the fuel
efficiency of the light vehicle fleet, and the apparent uncertainty about what
has been achieved to date by the current industry voluntary code.
The committee recommends that the Government, in consultation with the
car industry, investigate and report on trends in the fuel efficiency of the
light vehicle fleet and progress towards the 2010 target for the fuel
efficiency of new passenger cars. If progress under the present voluntary code
seems unlikely to meet the target, other measures should be considered,
including incentives to favour more fuel efficient cars; or a mandatory code.
If progress under the present voluntary code seems unlikely to meet the
target, other measures should be considered, including incentives to favour
smaller or more efficient cars (for example, by adjusting registration charges);
or a mandatory code.
Upgrading the national car
fleet would be facilitated by government mandating the use of fuel efficient
and hybrid vehicles in the government car fleet, which traditionally feeds into
the taxi and second-hand car market.
Any proposal to increase fuel excise as an environmental measure would
have to consider the distributional effects. People in the outer suburbs of
cities and in rural and regional areas would be most affected. These people
spend a relatively high proportion of their income on transport already, and for
most purposes have no public transport alternatives. Positive measures to
provide more alternatives to the use of cars would probably be more politically
The committee comments on the proposition that building roads to reduce
urban congestion improves fuel efficiency: this may be so in the short term,
considered per vehicle kilometre. But it is not necessarily so in the longer
term, because building roads also encourages more traffic, and entrenches
patterns of urban development that make high car use necessary. What the
overall result of these conflicting tendencies is, is hotly debated by
transport planners and public transport advocates. The committee notes that the
Council of Australian Governments (COAG) is now investigating options for
managing urban transport congestion.
The committee trusts that COAG's deliberations will take account of this point.
Reforming urban road use charges: congestion charges
Congestion charging has been discussed more and more in recent years as
a way of making more efficient use of the road system.
A motorist entering a congested road suffers delay, but also causes
delay to others. A cost that a person imposes on others without paying for is
an 'external cost.' If motorists are not required to pay for the costs they
impose on others, their behaviour will not respond to the full cost, and
economically inefficient overuse of the road will result. The resulting
congestion, as well as causing delay to all motorists, increases fuel
consumption as noted above.
Other external costs of car use are noise, pollution and greenhouse gas
emissions, some accident costs and, arguably, the detrimental health effects of
a too car-dependent lifestyle reducing physical exercise.
The costs associated with these detriments are significant. The Bureau of
Transport and Regional Economics (BTRE) has estimated that the cost of
congestion in major cities is $12.8 billion per year and the cost of the health
effects of motor vehicle pollution is $2.6 billion per year (central estimate
of total costs - the proportion which is an externality is not stated). 
Tailored road use charges are suggested as a way of reducing the
external congestion cost. Motorists would be charged to use roads at the most congested
times and places. This can be done by either a cordon charge in central areas (as
in London and Stockholm) or by electronic tolling. Tolls can vary with the time
of day. Those who value the use of the road less than the charge would adjust
their behaviour by travelling less often, or at other times, or switching to
public transport. Those who value the use more would have a less congested trip.
The overall result for community welfare is positive.
According to the BTRE, among the possible types of road use charges,
congestion charges have the best potential for reducing fuel consumption. The
BTRE has estimated that levying optimal road user charges in major Australian
cities could reduce peak hour travel by 20 per cent, overall travel time by 40
per cent, and total traffic fuel consumption by close to 30 per cent.
While the economic case for congestion charging is strong, politically
it has been very difficult to implement, because of the perception that it is
'yet another tax on motorists'.
One review of 25 examples around the world found that 'the common experience
was that pricing was only acceptable if this objective could be seen as the
solution to an already accepted problem, and a sufficiently widespread
acceptance that other existing policies are not capable of solving it.' To win
support for a proposal it was very important that the revenue was hypothecated
to transport improvements. It was found that channelling revenue to public
transport in particular increases public and political acceptance.
The Australian Automobile Association supports congestion charging for
the sake of the economic benefits, and supports using part of the revenue to
improve public transport: 'In many instances... it would make the motorist better
off if they had a viable public transport system.' The Royal Automobile Club of
Queensland recently proposed a scheme for Brisbane.
The Productivity Commission, in a recent report on energy efficiency,
noted that congestion charging could deliver significant economic benefits,
including improved fuel efficiency. It recommended further investigation
of congestion charging. The Government response
supported further investigation of congestion charging, noting that ‘effective
congestion management requires a range of complementary measures.’ The
Council of Australian Governments (COAG) is now investigating options for
managing urban congestion.
The object of a congestion charge is to reduce congestion. It is
noteworthy that at least two peak motoring organisations now support this (Australian
Automobile Association and RACQ). There are now a number of successful examples
around the world to look to. The committee suggests that Australian governments
should take a more active role in educating the public about the benefits of
congestion charges. To make the idea more politically acceptable it is desirable
to hypothecate the revenue to transport improvements. This should include improving
public transport services, so that more motorists have alternatives to their
The Committee recommends that Australian governments investigate the
advantages and disadvantages of congestion charges, noting that the idea may be
more politically acceptable if revenue is hypothecated to public transport
improvements (as has been done in London, for example).
Encouraging walking, cycling and public transport in cities
Many submissions argued for increased use of walking, cycling and public
transport in cities, as a way of reducing transport fuel use, or at least
restraining its growth.
In Australian cities typically 75-90 per cent of all trips are by car,
5-10 per cent by public transport, and the rest by cycling or walking.
In the last 20 years public transport use has increased slowly, broadly in line
with population growth, but public transport use as a proportion of all trips
has been flat or declining slightly as car use increases faster.
A major reason for this is that as cities have grown outwards a greater
proportion of people live in fringe areas that require more travel and are
poorly designed for public transport. Other reasons are the declining share of
commuting trips relative to other trips; rising incomes and the falling cost of
car travel; more flexible working hours; and increased workforce participation
by women with resulting increase in multi-purpose trips.
Some increase in public transport use in the last year has been
reported, presumably as a result of petrol price rises. However such increases
are mostly quite small in percentage terms.
Another line of reporting stresses that most motorists have no alternative but
to use their cars.
Ambitious goals for increasing the public transport mode share are
commonly seen in official plans.
In some cities there has been significant investment in this: for example, Perth
has electrified and extended its suburban rail network over the last 15 years,
leading to a three-fold increase in use. The goals of these policies seem to be
to control congestion and pollution, to give people more transport options, and
to improve the opportunities of people without cars. Reducing oil dependency
would be an additional benefit.
Many submissions urged the Commonwealth to be more involved in improving
urban public transport infrastructure. They pointed out that there appears to
be strong community support for more investment in public transport, and that
in many other countries federal governments do contribute to urban public
transport infrastructure. For example, in the USA the Federal Government is a
significant provider of public transport funds and has recently announced an
extension of its National Transportation Funding Program. Similarly, Canada has
introduced a federal funding program for urban public transport infrastructure
and in many parts of Europe (for example France and Germany) national
governments are major financial contributors to public transport provision.
The Bus Industry Confederation suggested that the Commonwealth should
'kick start' change by establishing a Sustainable Infrastructure Fund within
Auslink programs. Grants to states and local government would require them to
show that projects met sustainability objectives and were the outcome of an
integrated landuse/transport planning process. Similarly the International
Association of Public Transport proposed a Sustainable Transport Fund with a Commonwealth
grant of $500 million per year initially and matching funds from state and
The Commonwealth’s current policy is that public transport is the
responsibility of the States.
However the Commonwealth, through the Greenhouse Gas Abatement Programme, has
supported 'Travelsmart' projects, which aim to reduce car use by direct
approach to targeted households (for example, to provide information about
public transport services). Larger projects routinely show decreases in car use
of 4-15 per cent, and increased walking, cycling and public transport use. The
Queensland Government noted that Commonwealth funding for Travelsmart ends in
mid 2007, and urged that it should continue.
Cycling and walking
In Australian cities 30 per cent of car trips are less than 3km long,
and half are less than 5km. The Bicycle Federation of Australia argued that
many of these trips would be suitable for cycling, if the infrastructure was
there to allow it to be done safely.
At present, although bicycle ownership is high (from 29 per 100 people in Sydney
to 65 per 100 in Canberra), very few city people use a bicycle on an average
day (from 1 per cent in Sydney to 4 per cent in Perth), and only 1-2 per cent
of work trips are by bicycle.
It is estimated that currently about $100 million a year is spent on cycling
infrastructure and promotion. This is about 2 per cent of the $5 billion a year
that is spent on roads.
The Australian National Cycling Strategy 2005 was developed by the
Australian Bicycle Council (an association of relevant government agencies such
as road and traffic authorities and other stakeholders). It aims to encourage
cycling with policies such as:
- cycling should be an essential consideration in integrated land
use and transport planning;
- suitable infrastructure and facilities should be provided; and
- cycling should be supported and promoted.
The strategy is an 'agreement to cooperate', and is not prescriptive. It
leaves it to the member governments to decide what targets they will establish
for increasing cycling.
It was argued that electric bikes would greatly improve the usefulness
of cycling - the ASPO Australia Active Transport Working Group argued that
these should be encouraged by setting a 300 watt limit for unregistered
electric bikes, instead of the 200 watt limit which now applies.
The Walking WA Committee argued that 'creating activity centres where
employment, schools, recreation and shopping are within a short radius would
reduce car use...'
Government should put in more funding in the provision of a good
pedestrian network system as local streets and paths have been identified as
the most frequently used facilities. A similar program such as the “Black Spot”
program for cars have been provided by the Federal Government, a program “Footpath
black spot” program should be created to enable more footpaths to be built and
Studies suggest that overall the potential fuel saved from promoting
walking, cycling and public transport, with realistic assumptions about how
much behavioural change could be achieved, is relatively small compared with
the saving from improving the fuel efficiency of vehicles.
However more walking, cycling and public transport use is still a worthwhile
goal for a number of reasons - for example to reduce congestion and pollution;
to promote healthy lifestyles; and to reduce the disabilities suffered by
people without cars (since more public transport use would make better services
more viable). This applies regardless of predictions about the oil future. If
there is a long term rise in the price of oil, it will be all the more necessary.
It is often said that it is too hard to get Australians out of their
Others argue that the real problem is that people have no choice:
There is no real relationship between wealth and car use. People
use cars because they have to. Car dependence has become a dominant phenomenon.
There is a lot of nonsense about how you will never get people out of their
cars. You will not get them out of their cars unless you give them a better
option, and then they will.
The committee agrees that, whatever the reasons for people's travel
behaviour, changing it is a challenging goal. However this does not mean it
should not be attempted. It a clearly a long term project. Change may be slow,
but the important thing is to set the trend to reduce car-dependence into the
Efficient transport investment requires better road pricing. This will
probably mean significant new charges for using urban roads at the most
congested times and places, as discussed above (paragraph 8.26ff). This is
unlikely to be politically acceptable without serious improvement to public
transport services, so that more motorists have other choices.
Serious improvements to public transport infrastructure - particularly
rail extensions - are costly, tend to come in large, indivisible packages, and
have very long payback periods. They are hard to program within state-sized
budgets, and easy to shelve in favour of more incremental roadworks. However
this outcome is not necessarily optimal in the long term.
The committee does not suggest that the Commonwealth should take over
the states’ basic responsibility to operate public transport services. However
there may be a case for Commonwealth assistance to major projects such as rail
extensions which are unlikely to happen, or unlikely to happen soon enough,
without the involvement of the bigger budget which the Commonwealth commands.
The Committee recognises the need for more investment in mass transport
and urges COAG to take this up as a national infrastructure priority.
The evaluation of Travelsmart projects suggests that they have
significant benefits and can be a very cost-effective way of encouraging public
The committee recommends that Commonwealth support for Travelsmart
projects be maintained beyond the currently planned termination date.
Integrating transport planning and land use planning to reduce car use
Car-dominated transport habits reflect patterns of urban development
which make high car use necessary. Vast areas of post World War II suburbia
have been designed on the assumption that most travel would be by car, and with
the aim of making this easier. The effect has been to make travel in any other
way harder, as activity centres disperse to sites distant from the public
transport network, and the environment for pedestrians and cyclists is degraded
In these areas existing public transport routes do not serve many travel
needs, and services are poor. These services cannot attract people who have any
other option: they mostly function as welfare for people without cars, with a
very low proportion of total trips (less than 5 per cent).
The forces that drive high car use are still at work, in spite of the
fact that urban plans now universally acknowledge the need to reduce it.
According to Prof. Newman, recent capital city strategic plans 'have recognized
that there is a need to reduce automobile dependence and save on oil, [but]
have not intervened in any radical way to stop oil-consuming behaviours.'
WSROC noted that 'In the last 20 years in western Sydney only 18 per cent of
all new jobs have been located in centres.'
Wyndham Council in western Melbourne noted the targeted urban infill to
restrain fringe development 'is simply not happening'.
The Public Transport Users Association criticised factory outlet developments
approved by the Commonwealth on airport land, made possible by the fact that
the land is exempt from normal planning controls:
As you drive out to the airport I want you to just look at the
discount or factory outlets at Essendon airport on Commonwealth land that are
pretty much inaccessible by anything other than car or aeroplane.
Development control is divided between State and local governments, and
subject to the pressure of the property development industry representing
market forces. This makes it difficult to follow through any strategic plan in
the long term:
Planners do not plan cities. Someone plans the subdivisions—usually
the developers—somebody else plans the water supply, somebody else plans the
electricity and, if you are lucky, somebody plans the transport. But they do
not do it in concert; they do it independently. So industry develops where the
land is cheap and where the services can be provided by somebody with very
little cost to the developer... It goes in a circle and creates dysfunctional
cities in the passenger transport area.
Submissions stressed that turning around this situation requires better
public transport services and planning policies to shape urban
development so that public transport networks can work efficiently and attract
more ‘choice’ customers:
Travel behaviour and transport demand are directly linked to
land use. Those planning for land use must consider how people using a
particular space will travel around and through that space, as those decisions
will affect how people choose to travel in future.
Planning to reduce car-dependence means, for example:
- encouraging commerce and employment to locate at strongly planned
regional centres, so that public transport networks have somewhere to focus on;
- reserving new corridors for fast public transport early in the
planning of greenfields developments;
- new subdivisions and activity centres to be planned so that buses
can be routed efficiently; and
- design principles to give high priority to a quality environment
for pedestrians and cyclists.
Greenfields developments should be designed with high priority to
creating an efficient public transport route network. Services should be
provided from the outset, rather than being retrofitted years later, after the
new residents have established car-dependent habits.
Similarly, design principles to encourage walking and cycling must be in
place from the outset - for example, cycle-friendly road design, permeable
street layouts which do not force circuitous trips, and suitably placed local
and neighbourhood centres to promote walking and cycling for trips within the
neighbourhood. Traffic calming and lowered speed limits on local roads can
promote safe cycling in all areas at little cost.
Transit-oriented development can improve public transport use. This
refers to medium density mixed-use development around public transport nodes - this
will usually mean rail stations, since rail best provides the visibility and
permanence needed to attract this sort of development (high quality segregated
busways may also serve).
It should be stressed that transit oriented development is not the same
as general 'urban consolidation'. This is usually taken to mean the attempt to
increase population over wide areas of established suburbs by infill
development or rezoning for denser development. Capital city strategic plans
now commonly aim to house a significant proportion of future population growth
within the existing urban footprint, to limit the amount of greenfields
development at the fringe.
Undiscriminating urban consolidation usually arouses strong opposition from
residents, and there is debate over whether the benefits are worth the costs.
The committee makes no comment on that debate here, but stresses that many
other planning initiatives to promote walking, cycling and public transport, as
noted above, can and should be done in any case, regardless of views about the
best overall urban population density.
Urban strategic planning is the responsibility of State and Territory
governments. The needed initiatives involve State and local government. Most of
them require regional scale planning going beyond the boundaries of any one
local government area. The right institutional arrangements and powers are needed
to ensure that the planning and the execution are coherent.
The Municipal Association of Victoria suggested that 'urban development needs
to be supported by a fully funded and integrated planning approach that
involves the key agencies, including councils and the State Government'.
In Western Australia, transport, main roads and strategic land use planning
have been rolled into one Department for Planning and Infrastructure.
The International Association of Public Transport suggested that achieving less
car-dependent cities 'requires clear urban planning strategies which look more
than one or two election cycles ahead...'
There is a need to develop an urban strategy in each city and to
stick to it. In our bipartisan political system, that means getting support
from both sides of the political spectrum. It also means getting buy-in from
the Commonwealth government which still seems to have little interest in the
internal affairs of our cities notwithstanding that 85% of Australians live in
Most public discussion of encouraging public transport focuses on the
technicalities of improving the public transport service, and unfortunately gives
little attention to the important land use planning connection. It should
always be stressed that all land use planning is transport planning, as land
use planning decisions have a dominating effect on people's travel habits. The
best public transport service will not attract customers if the nature of urban
development in the catchment area makes it impossible for the route to serve
Governments who promote urban consolidation to reduce car use need also
to remember that the planning policy is not enough: the improved public
transport must also be provided. Denser population in areas where existing
public transport is mediocre or overloaded, without improvement, will simply
increase traffic congestion.
In all these matters, the aim of policy is to change people’s travel
behaviour at the margin. In the foreseeable future walking, cycling and public
transport will continue to be unsuitable for many travel needs. The aim is to
encourage them where they are suitable. A commonly stated goal is to increase
the public transport mode share from 10 per cent to 20 per cent of trips.
On the positive side, because the present public transport share is so low,
only a small behavioural change by motorists would be needed to greatly
increase public transport use. This would make better services more viable.
More use of rail for long distance freight
Many submissions argued for more use of railways for long distance
freight. Trains use about one third the fuel of trucks per net tonne kilometre.
At present road and rail have about equal shares of Australia’s total
freight transport task in tonne/kilometres (35% and 37% respectively, with 28%
sea and 1% air). However the vast majority of the rail task (86%) is
transporting bulk commodities such as coal and ore. Road performs about 75% of
the non-bulk freight task. It is suggested that only about 15-20% of total
freight is ‘contestable’ - realistically open to competition between road and
This is primarily non-bulk freight over longer distances on the main intercity
routes. The advantage of rail increases with distance, as the lower line haul
cost begins to outweigh the cost of transhipping at the journey’s beginning and
end. The rail share of land freight on these routes ranges from 10-15%
(Sydney-Melbourne) to 70-80% (eastern states-Perth).
The Bureau of Transport and Regional Economics (BTRE) expects that on
present trends, assuming no significant change in infrastructure, the long term
decline in rail’s mode share will continue on most routes. However if there was
significant improvement to rail infrastructure the result might be different.
This situation has arisen partly because of the competitive advantage of
road in speed and reliability (qualities which have become more important in
the age of ‘just in time’ logistics); partly because of a history of poor rail
management by former public authority owners; and partly because of past
government policies to invest heavily in improving roads and comparatively
little in improving railways. For example, over the last 30 years the Hume
Highway has been almost entirely rebuilt and duplicated.
The Sydney-Melbourne railway remains on the alignment built in the 1870s, with
many speed-limiting curves and gradients.
Commonwealth policy recognises that the rail system has been underfunded
in the past and has the potential to increase its share of the freight task if
there are improvements to infrastructure and modernisation of operating
Commonwealth has committed $2.4 billion to rail improvements over the 5 years
to 2008-9, mostly for the Melbourne-Sydney-Brisbane corridor.
In the longer term, Auslink ‘corridor strategies’ promise a balanced assessment
of the road and rail infrastructure needs of key corridors for the sake of the
most efficient overall outcome.
The Australian Trucking Association (ATA) supports the need for
investment in railways, but is concerned that the road freight industry should
not ‘have imposts put on our business simply to make rail more competitive.’ The
ATA also argued that heavier trucks should be permitted for the sake of their
greater fuel efficiency.
Fuel efficiency or possible oil depletion do not figure particularly in
the 2004 Auslink White Paper (Commonwealth government transport policy). The
Auslink policies and first five year program are based on goals of general
economic efficiency, considering the predicted strong growth of freight
transport over the next 20 years.
However it may be expected that if there is a long term rise in the price of
fuel, this will favour rail because fuel is a greater proportion of costs for
road transport. This may suggest a need to increase the pace of catchup
investment in rail infrastructure. Auslink corridor strategies ought to allow
The committee recommends that corridor strategy planning take into
account the goal of reducing oil dependence as noted in recommendation 2.
Existing Auslink corridor strategies should be reviewed accordingly.
Competitively neutral pricing of access to road and rail infrastructure
is an essential prerequisite to economically sound decision-making about
investment priorities. This has long been controversial - rail interests argue
that heavy trucks do not pay enough for the use of roads, while trucking
interests argue that they do. The Productivity Commission has recently investigated
this, but at the time of writing, the report had not yet been released.
The committee agrees with the Australian Trucking Association that there
is no case to hamper the road freight industry by regulation or by excessive
charges, merely in order to improve the competitive position of rail. Once
economically rational investment priorities and competitively neutral access
charges are assured, road and rail should be able to compete on their merits.
If there is a long term rise in the price of fuel, this will show itself in
changing their competitive position.
The committee comments on the Australian Trucking Association's
suggestion that bigger trucks should be allowed for the sake of their fuel
efficiency: this idea should be approached with caution. The overall effect
needs more detailed study. Bigger trucks will cause greater road wear and
accident costs. They will also tend to be concentrated on the routes which compete
most directly with rail. If they take traffic from rail, given that rail is
more fuel efficient still, the net result in terms of fuel efficiency could be
Other matters: fringe benefits taxation of employer-provided cars
Many submissions argued that the concessionary tax treatment of cars as
a fringe benefit should be abolished. They argued that the concession
encourages the use of cars for commuting and is contrary to widely held
government policy goals to promote public transport and restrain urban traffic
Private use of employer-provided cars is taxed by recording actual business
and private use (the operating costs method), or by deeming certain proportions
of business and private use using a statutory formula. About 90 per cent of car
fringe benefits tax is calculated by the statutory method. The statutory
formula deems that the taxable fringe benefit is the base value of the car
times a percentage which varies according to how far the car is driven in the
year. The taxable fringe benefit is less if the car is driven further. The
rationale for this seems to be an assumption that if the car travels further,
it is likely that a smaller proportion of its use is private.
during the FBT year
less than 15,000
15,000 to 24,999
25,000 to 40,000
The tax is concessionary because the statutory formula overestimates the
amount of business use; thus some private use is untaxed.
The concession was worth about $1.1 billion in 2004-5.
The tax forgone is about 43 per cent of the tax that would be collected if the taxable
fringe benefit was calculated accurately. The concession is worth, on average,
about $2,300 per vehicle.
The statutory formula method of calculating the tax liability, which
creates the concessionary aspect, was adopted to minimise compliance costs and
to support the Australian car industry, which at the time (1986) attracted
significant government support and provided nearly 85 per cent of car sales.
The Institute of Chartered Accountants in Australia (the ICAA) argues
that the concessionary treatment should be ended, since:
- it undesirably distorts economic behaviour; and
- as a way of assisting the Australian car industry it is poorly
targeted, as now only 29 per cent of new cars are Australian-made.
The ICAA points out that the question of minimising compliance costs is
distinct from the question of whether the tax should be
concessionary. A statutory formula method could be maintained for the
sake of easy compliance, while the concessionary aspect could be removed by
adjusting the rates.
The concessionary treatment of FBT on cars encourages car use and
contributes to urban congestion. It is suggested that in Sydney 50 per cent of
cars on the road in peak hours enjoy the concession.
As well, it is often noted that the sliding scale encourages people to drive
further merely to reach the threshold distance that earns a lower fringe
Some submissions also suggested that public transport tickets should be
given a tax concession in some way - for example, in Canada 15.25 per cent of
the cost of a monthly or longer transit pass can be claimed as a rebate of tax.
At present in Australia employers are free to offer public transport tickets as
a fringe benefit but, by contrast with an employer-provided car, there would be
no tax advantage in doing so. On the other hand, Treasury argued that a tax
benefit for public transport use would seem to be contrary to fundamental
principles of the tax system:
If you were to start using the fringe benefits tax regime to
provide an incentive for people to use public transport, you would run into an
issue about effectively providing a tax deduction for private expenditure.
The committee notes that the Council of Australian Governments (COAG) in
February 2006 resolved to investigate options for managing urban traffic
congestion consistent with jurisdictional responsibilities.
The committee suggests that this include the Commonwealth reconsidering the
policy behind the concessionary treatment of the fringe benefits tax on cars.
The policy encourages car use for peak hour commuting, and now seems to serve
little of its original purpose.
The committee notes suggestions that public transport tickets should
earn a tax concession in some way as a 'levelling the playing field' measure.
In relation to this, it should be noted again that the car FBT regime is
concessionary because of the construction of the statutory formula, not because
the trip to and from work is tax-free. The trip to and from work is not
tax-free - as a general rule it is regarded as private use, just as a public
transport trip is.
If the concessionary aspect of car FBT related specifically to the trip
to work, there might be logic in suggesting a corresponding concession for a
public transport fare. But this is not the case. The best 'levelling the
playing field' measure would seem to be to end the concessionary aspect of the
car FBT, not to create an ad hoc new concession for public transport fares
which is contrary to the fundamental logic of distinguishing private and work
related expenses in the tax system.
The Committee recommends that the government review the statutory
formula in relation to fringe benefits taxation of employer-provided cars to
address perverse incentives for more car use.
It should be stressed again that the question of whether the tax should
be concessionary is different from the question of minimising compliance costs.
A statutory formula method can be retained for the sake of easy compliance,
while the concessionary aspect can be removed by adjusting the rates.
General comment on demand management measures
When government considers the range of policies needed to reduce oil
dependence, and the level of government intervention or support that they deserve,
the costs and benefits of demand side measures versus supply side measures
should be compared. A litre of oil saved through a fuel efficiency measure, or
by turning a car trip into a bicycle trip, is just as real as a litre of oil found
by new exploration or produced in a coal to liquids plant.
It should be remembered that measures to reduce demand for oil-fuelled
transport also have other benefits - reducing greenhouse gas emissions; promoting
the environmental and social benefits of less car-dependent cities - which the
alternative fuels do not have, or have to a lesser degree. In the cost/benefit
comparison these extra benefits should count to the credit of the demand
Senator the Hon.
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