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Making road users pay could clear infrastructure gridlock

This week, Australian motoring groups decided to back road user charges, arguing that it would be a fairer system. At the same time, the groups said the change to user charges would secure sufficient funding…

A proposal to remove registration and petrol taxes and replace them with distance charges should get the green light. AAP/Lukas Coch

This week, Australian motoring groups decided to back road user charges, arguing that it would be a fairer system.

At the same time, the groups said the change to user charges would secure sufficient funding for new infrastructure and provide incentives for drivers to avoid driving during peak hours.

This is an unprecedented move for motor lobby groups in Australia.

And it’s a win for Australians. Charging road users would mean payment based on distance travelled and the time driven, and the additional revenue would facilitate the removal of fixed fees like registration expenses and the fuel excise tax.

For many years car drivers have complained about the increasingly congested roads in Australian metropolitan areas, and have asked governments to do something about it. Governments have responded by building new road infrastructure and introducing new public transport services.

But governments clearly do not have sufficient funds for all required investments, so they do not make the necessary investments in public transport, and they propose toll roads to let motorists (partly) pay for the investments.

In the past, motoring groups have argued car drivers do not want to pay more for what they consider already high costs for driving a car.

This creates an impasse, and essentially we get what we pay for, which is heavily congested roads. The proposals put forward by the motoring groups follow recommendations for further user pay roads in the Productivity Commission’s draft infrastructure report, quashed by prime minister Tony Abbott.

The aim of the new proposals is to ensure sufficient funds are available for investments in roads and bridges, and develop a mechanism that provides incentives to drivers that result in less congestion. It is important to note that the motoring groups do not say the average car driver needs to pay more. Instead, they argue that they should not pay less and they should pay differently.

Doing the maths

A quick calculation (based on average prices and average fuel consumption) shows the average car driver in Australia pays between A$700 and $800 a year in fuel excise tax, which is currently $0.38 per litre (plus 10% GST). Car owners in NSW pay around $300 per year in registration fees and between $200 and $300 in toll payments (although this varies widely).

A fixed registration fee seems unfair to people who drive very little. And toll roads only in certain locations seem unfair to people who happen to live in the area. But are Australians paying a lot? It depends on the point of reference.

Compared to the USA, where the fuel excise tax is about US$0.14 per litre, and where the annual registration fee is around US$46, Australians do seem to be worse off. But compared to many European countries we actually pay very little. For example, the annual registration fee in the Netherlands is around €600, and the fuel excise tax is €0.78 per litre (plus 21% GST). However, toll roads hardly exist in the Netherlands. The average number of kilometres driven by Dutch people is similar to Australia, and net incomes are lower.

So compared to car drivers in the Netherlands, Australians pay very little. Looking at the difference between transport systems in the USA and in Europe, it is clear where the extra money goes, namely to public transport. While the USA is a car-oriented country, European countries typically have strong public transport networks.

So why should car drivers pay for public transport? The answer is actually quite simple. If public transport was much more expensive (or did not exist at all), many more travellers would be driving their cars on the roads, causing massive gridlocks.

But current revenues aren’t enough to cover investments in infrastructure. The maintenance of existing roads is already very expensive, costing between $200 to $300 per person in NSW, around $300 to $400 per car. Expanding infrastructure is extremely costly. The WestConnex project in Sydney, for example, is expected to cost around $10 billion, or around $2000 per car in NSW. And revenues from fuel excise tax are actually going down since cars are becoming more fuel efficient. This is one of the reasons why motoring groups worry about future investment.

A fairer approach

A report prepared for the motoring groups by Deloitte suggests a user charge based on weight of the vehicle, distance travelled, and based on location and time in which a rural car driver outside rush hours would pay much less per kilometre than a city driver in the peak hours. This can be done in a revenue-neutral fashion such that the average car driver does not pay more.

In fact, it can be introduced in such a way that the majority of people would pay less than what they currently pay by removing the fixed annual registration fees and making all costs based on usage of the road system, so people who drive less will pay less. Brendan Lyon, the chief executive of Infrastructure Partnerships Australia, is right to say this is a fairer way.

Its use in other countries has shown that offering car drivers incentives to avoid user charges is an effective and efficient way to combat congestion. An important underlying assumption here is that car drivers have alternatives to choose from. These alternatives are, for example, departing outside peak hours, taking public transport, working from home and car-pooling.

Surveys in NSW have shown that people in general are in favour of user pays. This means we need to consciously think about our mobility, where we work, and where we live.

It means that the government should offer viable public transport alternatives. It also requires a conversation with companies to offer more flexible working hours and provide facilities to work from home. The time seems ripe for a change. Simply investing in road infrastructure, letting more cars into congested downtown areas, and waiting until cities become completely gridlocked is not an option.

Motorist groups are now advocating what economists have been recommending for years: remove fixed annual costs and introduce a pricing system with avoidable costs to make travelling more efficient.

The ball is now with the politicians.