I wrote on 27 March that the a Finnish Government Working Group had recommended that the country move away from fixed taxation of motor vehicles towards a distance based approach. I've now had a chance to read the full report (in English) of the Working Group and to digest its analysis and approach, and it demonstrates the one rule of thumb I've often seen in road pricing studies across the world - every country has considerably different contexts, but many common issues.
To read the report yourself, it is available here as a pdf.
For those who don't want to dive into the detail, I'll summarise my key thoughts and views first, and then put down some more detailed reflections afterwards. It's particularly pertinent given the upcoming ITS Europe Congress in June, being held in Helsinki.
|Finland, most of the population is along the southern coast|
On 3 February 2012 a working group was established to explore how Finland could move towards "fairer and smarter transport systems and study long term strategies to introduce road pricing systems, with a specific mandate to assess the feasibility of GPS road pricing". The focus was on looking at global experience, what objectives road pricing could serve, what technical solutions could be viable, what impacts would arise and how and over what timescale it could be introduced. The working group was also to look at privacy and whether any other services could be provided using the GPS platform.
This follows previous investigations into congestion pricing for Helsinki alone, which came to the conclusion that the best approach would be some form of distance based charging that varies by time and place.
The key points from the study are as follows:
- Existing fixed taxes for cars should be replaced with a distance based tax. Those taxes include car tax (paid on first registration of vehicles in Finland) and annual vehicle tax and vehicle motive force tax.
- The tax considered for the purposes of the study would be €0.033/km (US$0.074/mile) on all cars with another €0.02/km (US$0.045/mile) for non-petrol cars to offset the lower diesel tax. Some variants on this were tested based on a regional differentiation.
- The distance tax would not replace fuel tax. Finland's fuel tax rates are €0.6729/l (US$3.52/gallon) for petrol and €0.4966/l (US$2.60/gallon) for diesel, compared to the EU legal minimum rates of €0.359/l for petrol (about US$1.89/gallon) and €0.33 (US$1.72/gallon) for diesel. (note these are US Gallons for the sake of comparison, not imperial).
- Motoring taxes in Finland already recover more than five times the state spending on road maintenance, with none of the money hypothecated for roads, so the argument for distance tax was not based on revenue generation or protection, but rather dynamic improvements in economic and environmental outcomes. By law, such a charge can currently only be a tax in Finland.
- Shifting from fixed taxes to fuel taxes was considered, but ruled out because it would not offer the potential to target congestion and environmental impacts by location and time of day.
- The distance tax would not apply to buses and coaches because no fixed taxes apply to them.
- The distance tax would also not apply to HGVs because the fixed taxes that apply to them could not be reduced sufficiently to make the tax work, as the rates are not far above EU minimum rates.
- The net impact of a shift to distance tax by 2025 is estimated as being a 30 million reduction in annual car trips, with a 4% drop in CO2 emissions from cars and around the same proportionate drop in serious car accidents.
|Change in passenger km estimated in 2025 from introducing distance charging in Finland|
- Most car users would pay less, with commuters in cities and high usage rural users paying more. The net effect is to reduce barriers to car ownership, but encourage car usage when and where alternatives are not available.
- The estimated capital costs for such a system, for 3.5 million cars, were €89m-133m (US$123m-US$183m) (which I believe to be far too low), but operating costs were estimated at between €116m-133m (US$161m-US$183m) per annum. The report indicated more scrutiny is needed over these costs.
- However, these higher costs compared to the current tax system would be recovered by the reduced costs to the economy of fewer accidents and emissions. The savings from reduced congestion were not calculated, but given evidence from previous studies ought to deliver substantially higher economic gains, even if charges did not vary by time of day or location.
- It was considered that the primary benefit from the change would be to allow for charging by specific road and time of day, so congestion charging could be introduced equitably, targeting congestion and locations where there are reasonable public transport alternatives.
- It was strongly recommended that any distance tax have strong privacy protection, so that all data on specific trips be kept with the on board unit and in the possession of the vehicle owner, with only charging data released. Other data could only be accessed if the owner wished to query the tax calculation or if there is suspicion of systematic fraud.
- There could be industry development potential in allowing such a system, as it would encourage local business to develop complementary systems and potential applications to use alongside the distance tax.
So, Finland is considering a car only based distance tax to replace taxes on owning cars. That's interesting and revolutionary, but I also think it is missing some key points, which I come to below. These are:
- Fuel tax ought to be included down to EU minimum rates;
- By including fuel tax, all other vehicles should be taxed by distance and mass;
- The rates of distance tax should reflect, at a minimum, infrastructure costs;
- By shifting to distance tax Finland cannot evade a strong case for partial hypothecation of revenues, in which case it may be wise to consider part of the charge not being a tax, legally speaking;
- The capital and operating costs need far closer scrutiny;
- The benefits of shifting to distance based charging may be overstated around accidents, due to technology around automation, but understated by excluding the deadweight costs of existing taxes.