Driving dollars: Congestion charges under the microscope in new road pricing book

Should drivers pay for how much they use the road? Economists and transport policy experts think so – but their advice is largely ignored by politicians wary of a backlash from voters.

That deprives Australian andNew Zealand governments of a potential tool to reduce traffic congestion and raise funds for new roads and public transport.

ANZSOG’s Professor John Wanna and University of Canberra Senior Lecturer Dr Michael de Percy have co-edited a new book Road Pricing and Provision: Changed Traffic Conditions Ahead, an attempt to advance the reform agenda by presenting the latest thinking on road pricing and provision from a range of different disciplines.

Download the book here

Road pricing would see drivers charged directly for the amount they use roads, with a system similar to the ‘congestion charges’ used in major cities such as London.

Professor Wanna outlined five problems with the current system of road funding – where new roads and maintenance (with the partial exception of new toll roads) are funded largely through general revenue

1. Existing pricing and cost-recovery mechanisms are indirect, unnecessarily complicated and politically messy, involving multiple but separate jurisdictions.

2. Funds raised by state and territory governments do not closely relate to actual usage, and excise levies are only approximately related to usage.

3. There is no link between these various charges on vehicles and the costs of providing and maintaining our present road network.

4. Road funding by governments is considered to be an essentially political arrangement, inherently arbitrary and inefficient for road users and network asset management.

5. The projected funds generated by road and fuel charges are considered insufficient to fund the existing road network going forward and to meet future infrastructure needs.

Professor Wanna said that the problem is exacerbated by a federal system which has ensured no one level of government has been able to take control of system-wide aspects of the road network. The shortfall in funding is likely to be exacerbated by the growth in electric vehicles, which do not pay fuel excise.

A Deloitte report, prepared for Infrastructure Partnerships Australia in 2015, made a case for a ‘universal road user charge model’ applied across the entire road network. This option would work to address the shortfalls of the current system by providing additional funding, covering road maintenance needs, charging the full allocation of costs, providing funding security and improving network performance.

However this option would run into widespread popular opposition, and Dr de Percy said that transport infrastructure in Australia remained highly political, and was one of the last sectors to resist reforms.

Congratulations to authors Michael de Percy and John Wanna who today launched their new title ‘Road Pricing and Provision’ at Department of Infrastructure, Regional Development & Cities. See more about their book here: https://t.co/OAClWE2ZBp … @ANULibrary @ourANU @anumedia pic.twitter.com/NKn6OgFim1

— ANU Press (@ANU_Press) September 4, 2018

“Road-user pricing, as part of broader tax reform, has not been taken seriously,” he said.

“In the book, we stress the need for reform to ensure Australians can enjoy the benefits of efficient and sustainable transport infrastructure as population and major metropolitan cities continue to grow.”

“There is a reluctance to reform this sector, yet there is acceptance in other areas such as water, electricity, mobile telephone networks and communication. The only impediment is the political ability to work through the issues.

“Road pricing in Australia is shaping up to be an incredibly important policy instrument to change the behaviour of road users and to address the decline in federal fuel excise revenues.

“To do nothing would result in a reduction in productivity and the impact of traffic congestion on voter satisfaction would mean that all parties, including government, are effectively policy losers.” 

The way forward

He said one idea worth considering was the establishment of an independent roads regulator based on the Reserve Bank model.

“This model will ensure fairness and equity for all. An independent regulator will guarantee the use of several models that can be adapted to local circumstances and encourage competition as opposed to a national, one-size-fits-all model,” Dr de Percy said.

Former Productivity Commission head and former ANZSOG Chief Executive and Dean, Gary Banks, has contributed a chapter and says that the real question is whether political leaders are up to the task of making major reforms to road pricing in an environment that has become ever more challenging for far-sighted reform.

“Traditionally, the public has seen roads as a free good, funded through less transparent fuel excise and other taxation, rather than direct pricing. So proposals to introduce cost-reflective pricing are bound to face broad opposition, particularly from those paying more as a result.”

But the obstacles to these reforms, while challenging, are not so different to those for other areas of infrastructure that progress should not be possible. Even in the most challenging area of road pricing, users are becoming accustomed to the principle of ‘user pays’ from moves in other service areas (such as water) and have clearly accepted the logic for toll roads. And, given roads are not really ‘free’, making a compelling case for moving to a more efficient way of paying for them, provided arrangements can be shown to be ‘fair’, should not be so hard.

Professor Wanna said that governments who wanted to introduce road pricing needed to be careful about how they approach it – with many different and potentially rival proposals already existing.

He said one of many crucial issues would be to determine a justifiable way of setting prices, given that the roads were largely a government monopoly, and any price imposed would be seen as arbitrary and unavoidable.

“The best way to proceed for governments in such circumstances is for them to be as clear as possible in their (sometimes competing) objectives, identify which options are politically feasible and then prioritise the reforms. Only by being so clear and focused will governments stand any chance of gaining interjurisdictional agreement and community acceptance of the proposed options.”

Road Pricing and Provision: Changed Traffic Conditions Ahead is available as an e-book or in print.