Thursday, 28 July 2011

Australian Federal Government floats road pricing in new tax discussion paper

After a cool reception for the Henry Tax Review, commissioned by the previous Labor (Federal) Government in Australia (under Prime Minister Kevin Rudd), the current Labor minority Government (supported by the Greens and three Independent MPs) has released a tax discussion paper called "Tax Reform: Next Steps for Australia" (Full PDF file)

Among other things it proposes:
- Heavy vehicle road user charging based on mass, distance and types of roads used (implying a shift from vehicle registration and fuel taxes) to be developed through the state level Council of Australian Governments;
- Congestion charging variable by time and location.

It also notes that technology may allow road pricing to be implemented more widely than those examples.
Page 29 of the discussion paper explains the thinking, none of which should be a major surprise.  It criticises the current system (which is widely implemented globally) as follows:

current arrangements provide inadequate incentives to operators to choose routes and vehicle configurations that minimise road damage and costs on others. The current charging system also results in significant cross subsidies between different types of heavy vehicle operators.

Quite. Vehicle configurations are taxed based on annual registration fees, and fuel tax only encourages road use that minimises fuel consumption, which may not minimise road damage.  In addition, it is clear that the heaviest longest hauling trucks are likely to be cross subsidised by the shorter haul vehicles, because fuel tax over long distances means less charged per km than for short or urban trips, because fuel consumption is so much more efficient.  Road costs do not decrease though.   In addition, with registration fees reflecting weight, the vehicles that travel the least distance effectively cross subsidise the ones that travel the most.   

On congestion charging, the key point is the limits to building new infrastructure:

Building more roads is one way to try to address congestion concerns, but equally important is better utilisation of existing infrastructure. There are physical, environmental and financial limits on the construction of new transport routes.

What does it mean? Well a Tax Forum is to be held to discuss all of the issues in the paper (and most are unrelated to transport).  Questions offered for discussion are:
  • Should Australia consider ways to more closely link road charging to the impact users have on the condition and upkeep of roads?
  • Is there a case to more closely link road charging to the impact users have on the level of congestion on particular roads?
My answer to both is "yes", but this is about convincing the transport sector and the public.  For it is a prelude to potentially wide ranging changes in how roads are charged for in Australia.
If I was to lay a bet on it, I'd say Australia will first implement heavy vehicle charging, because there are clear economic benefits in doing so, the political cost is not particularly high, and it is a significant first step to prove a system or systems can work, be user friendly and efficient.  Congestion charging in cities may be harder, because most of the cities don't lend themselves to compact easy to implement solutions, although the existing toll roads in many major cities could be used as a first step with peak pricing (which already happens on Sydney Harbour Bridge).

However, given the importance of the Greens in supporting the current government, I wouldn't be surprised if some incentives were created to promote congestion charging.  In addition, as it is a couple of years till the next election, it is easier to be brave this early in a Parliamentary term.

So the big question is, will Australians accept a shift in how vehicles are charged in the coming years?  At least the discussion is being had, and it appears the terms of reference for it are quite rational.

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