Sunday, 9 October 2011

Truck road user charging: Australia and New York debate

Two completely separate reports are showing how debates are proceeding in two different jurisdictions about transitioning taxation for heavy vehicles (in particular trucks) towards distance based charges.

Australia

I've reported before about the Australian Federal Government's review of taxation, with the release of a discussion paper floating a shift from fuel tax and ownership taxes to distance based charging.  There is some support for the concept among motoring groups.  However, the reaction in the rural and road freight sectors has been negative.  The claim is that it would be complex, expensive to administer and penalise rural areas (because of charging by distance).

fuel excise and registration fees do not provide incentives for trucking operators to choose routes and vehicle configurations that minimise road damage and flow-on costs... The current charging system also results in significant cross subsidies between different types of heavy vehicle operators,” is what the discussion paper says.  It is right of course.

However, the battle lines are forming.

Fully Loaded reports on how the Australian Trucking Association has been invited to the tax forum, and expressed its preference to retain the status quo of fuel tax with two tiers of annual vehicle licensing fees.

The concerns are two fold.  One is obvious.  Australia as a large country will naturally mean distance based charging could mean expensive trips.  However, that is a corollary of having long thin road networks.  A decision would need to be made as to how much of those costs should be born by the road users and how much by the property owners for whom some of these roads are access routes.  However, for long thin intercity/interstate routes, it is difficult to argue against those roads being paid for by the users of those roads.   A full network costs and charges study (similar to work done in the UK, EU and New Zealand) might help inform such a debate.  Indeed, the entire debate around road pricing could be better informed if the under-charging (and over-charging) across road (and rail) users were to be more transparent.

The other concern appears to be that a weight/distance based system might cost truck operators a lot, and involve “red tape”. There is, of course, no need for that. Neither the Toll Collect system in Germany, nor ERoads in New Zealand, nor the non-GPS systems in Austria or the Czech Republic (links on this blog to the right) impose high costs on users. It is a function of design, governance and being oriented toward it not being a tax, but a service.

The public policy reasons for heavy vehicle charging are clear. It can incentivise lower maintenance costs by encouraging trucks to use routes and wheel/tyre configurations that reduce road damage. It can also more fairly allocate costs among operators. However, there are other benefits. It can more easily allow bigger, heavier trucks to operate on roads that can handle it. It might put rail and road freight transport on a more even footing, particularly for the heaviest longest distance hauls where rail is most competitive.  However, a cost and charges study is needed to really understand the impact.

Yet what needs to be sold is a deal to the truck operators.   The savings in annual vehicle licensing fees, which could be a single flat rate across all trucks based on recovering administrative costs, would be the pay back, along with refunds of fuel tax (assuming Australia doesn't follow New Zealand which abolished diesel tax), so that it is largely revenue neutral.

A system where trucks will not need to pay when offroad, with simple payments and low compliance costs. Greater mass and dimensions should be on offer where viable, and potentially off peak discounts (which may mean peak charges in CBDs).  Allowing heavier vehicles on some roads automatically would also be advantageous for some. There will need to be trade offs between complexity and operating costs, but policy makers need to move beyond a vague concept that can be shot down, to presenting options. That means a dialogue that addresses concerns. Indeed, heavy vehicle charging in itself wont realise many of the benefits of road pricing, but it can improve productivity and efficiency of the freight sector, as well as reducing road maintenance costs.

New Zealand recently reviewed its 33 year old weight/distance charge that applies to all vehicles over 3.5 tonnes, and concluded (after some submissions to replace it with diesel tax) that it was better to keep it and enhance it.

For Australia to move toward such a concept (and preferably a better one), it has to think of pricing not as a way of getting new revenue, but to better collect what it collects now. It needs to consider how the technology can enhance business for freight operators, and engage with them. Most of all, it needs to sell to the public, business and operators as to why this is a good idea for the country (and I believe it is). The effort involved in that should not be underestimated.  It means making the case on pricing (with the evidence) and proving how it can be done, with low administrative costs, and what will be in it for truck operators.

New York

The State of New York is one of the four states in the US that still has a weight/distance tax for trucks (Oregon, Kentucky and New Mexico are the others).   Stateline reports on a study undertaken by Richard Mudge of Delcan Corporation on how to reform the system, and comes up with some interesting points.  I don't have access to the study, but here are some reported points:

- Many trucks in NY state have to pay six or seven taxes, making it possible to consider a system that means they pay just one, even better if it works across multiple states;
- Existing taxes on trucks in New York collect about $450 million p.a.;
- Truck operators preferred simple per mile fee compared to options that offered different rates according to type of road or time of day;
- Even though only 4 states in the US have a weight distance tax, all truckers must keep track of distance travelled, as information used to inform how federal fuel taxes are redistributed among states;
- Estimate that New York state loses more than $200 million a year because of underreporting of mileage (exacerbated by relatively high fees);
- While some are concerned that mileage tax costs more that fuel tax to administer, it is estimated at costing between 2- 5% of revenues, but vehicle registration costs 18% of revenues to administer, and tolls between 20 and 33%.

The details of New York’s situation are interesting, and it is a more interesting point about how much is lost due to underreporting of distance by trucks across the US. I don’t believe that distance based charging can cost 2% of revenues at the moment, 5% is achievable (but not yet achieved). Fuel tax certainly should cost less than 1% to administer, and tolls can cost as low as 10%. However, for me the study appears useful as a way of gauging how the trucking industry can be engaged in the debate about how to go about introducing a more sophisticated distance charge for road use.

New York State already has a platform to build upon, the challenge is to make it a more compelling proposition than it currently is, by considering how it can be made to be, say interoperable with existing toll roads in New York and neighbouring states.  More importantly, it should be an opportunity to be more efficient in charging, and to help provide a solution that is scalable.

Conclusion

The challenges with charging trucks by distance are considerable, especially when you are talking about a transition from fuel tax, and when there are cross border issues.  Australia's challenges are around convincing the industry that such a transition to charging by distance wont mean they pay more.  New York's, I believe, are as much around dealing with traffic from other states, and trucks operating elsewhere.  In both cases, the story behind better pricing ought to be supported by a study into the economics of the existing costs of the road networks and what vehicles charge, to understand where under-charging and over-charging may lie.  For this should not just be about technology and making money, but better pricing.  Finally, for anyone having to pay, they must have confidence that the money collected will be well spent.  Any consideration of reviewing pricing needs to also ensure confidence in spending.


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