Monday, 15 February 2016

Australian Federal Treasurer urged to investigate replacing fuel tax with road user charging

The Australian Financial Review reports that the Australian Automobile Association (which claims to represent seven million members across eight motoring associations) and Infrastructure Partnerships Australia (a think tank on infrastructure market reform opportunities which includes government and private sector members) have called upon Federal Treasurer, Scott Morrison, to hold an inquiry into replacing fuel tax with road user charging.

The report continues:

A joint-letter by the groups to Mr Morrison, obtained by The Australian Financial Review, describes the current transport funding model – based on a 39¢-per-litre excise that raises more than $15 billion a year – as "ad hoc, outdated, fragmented and lacking in transparency".

"It is clear that the current funding model cannot deliver the infrastructure required to address increasing congestion across major cities or meet the needs of Australia's regional communities and industries."

In short, the concerns are:

- Increased inequity of users of the most fuel efficient and electric vehicles not paying;
- Inability to charge for congestion;
- Inability to target charges for specific infrastructure improvements unless they are of a scale to justify dedicated tolls.

A spokesman for the Treasurer recognises the focus in Australia right now on heavy vehicle charging, but with an interest in looking at the merits of charging light vehicles, seeking to:

accelerate work with states and territories on heavy vehicle reform and investigate benefits, costs and potential next steps of options to introduce cost reflective road pricing for all vehicles.

The article claims there are cross subsidies of city dwellers by rural motorists, claiming again that rural motorists drive longer distances so pay more in fuel tax.   This deserves closer scrutiny for various reasons:

1. It is not altogether clear that rural motorists drive longer distances "on average", but they probably pay more fuel tax due to the lower likelihood of owning smaller engined vehicles that are more fuel efficient.

2. The cross subsidy from rural to urban seems questionable at least in terms of infrastructure maintenance costs.   A general rule of thumb is that between 30 and 70% of maintenance costs of roads are fixed, and are related to weather and erosion, not traffic levels.  With a vast network of roads with very low traffic volumes, it may be questionable that the fuel tax paid by users of those roads recovers those costs.  

Notwithstanding this, it is clear the current system involves a lot of cross subsidy, from high fuel consuming vehicles to low fuel consuming, and high distance travelling heaviest vehicles to low distance travelling lighter vehicles.  An inquiry into fuel tax and registration fees that outlines these and discusses some of these issues would be valuable, and also to acknowledge the declining yields of fuel tax (which inflation adjustment does not address).

With registration fees imposing a considerable burden on a heavy freight industry in recession and fuel tax raising increasing equity issues, there is potential for an inquiry into motoring taxation and indeed the impacts of the existing system (and potential for reform) to help promote the case for reform, to accelerate heavy vehicle charging and get better understanding of how light vehicle charging may deliver significant benefits for the economy, the environment and transport network users overall.

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