News shorts - Australia, Canada, USA

Australia

The New South Wales Government is facing continued pressure on budgets, like many governments, and so according to the Daily Telegraph (Australia) appears to be pushing for another PPP toll road in the form of the F3-M2 motorway.  It is expected the new highway will be tolled and entirely privately financed and owned.   The F3 is the Sydney to Newcastle freeway that currently ends in the northern suburbs, the M2 is a private toll road (managed by TransUrban) that forms the northwest to north-central connection of the “Sydney orbital” motorway network connecting the M7 toll road (which effectively forms the western leg of a “Sydney bypass”) to the freeways at the northern end of the Sydney Harbour Crossings.   The M2 is a fully electronic free flow toll road as of January 2012.  The F3 to M2 link would complete the Sydney bypass by providing a full motorway standard ring route from the north to the south, and so is considered to be a strategically critical link in Sydney’s motorway network.  The Government is apparently having talks with TransUrban about the project, although   Other projects under consideration include widening the M5 motorway (the toll road running south-west from the airport to the southern outskirts of Sydney) and the M4 east (an expensive extension from the major western motorway to bypass inner city suburbs to connect to the downtown Western distributor freeway).

Calgary

The Calgary Herald reports that the University of Calgary School of Public Policy has published a paper advocating that users be charged directly to fund infrastructure including roads.  Although it will be “phenomenally difficult” politically, it needs to be undertaken in an open and transparent way, with acknowledgement that existing taxes are incapable of stretching to pay for maintenance and renewal of networks.

The newspaper reports:

Although tolls exist throughout the United States, on Toronto’s 407 Highway and the Vancouver area’s Golden Ears Bridge, it’s a no-go issue in much of Canadian politics. It’s so hot that when a Transport Canada call for proposals for a study on road pricing made headlines on the eve of the 2008 election, the Harper government’s transportation minister swiftly quashed that idea.

Similarly there is little enthusiasm with the current Alberta Provincial Government for tolls:

Transportation Minister Ric McIver said he won’t go near the idea of user fees on the big-city ring roads. He’ll entertain the possibility of tolls for the fast-tracked twinning of Highway 63, but only as part of his promise to “look at all the options,”

The Calgary Mayor, Naheed Nenshi also ruled out congestion pricing on existing roads.  Brian Flemming, from the School of Public Policy says the reasons to consider user pays are:

•  The need to find a gap in funding following the end of “stimulus spending”, which can also leverage private capital;
•  Increased fuel efficiency and alternative fuels diminishing revenues from fuel tax.

 However, this doesn’t mean just a few toll roads, he is pushing for proper network road pricing, and that is a debate that Canada hasn’t started to have yet.

“This means something far beyond mere traditional tolling of roads and bridges. It means creating a system whereby those who use infrastructure will electronically have to pay small and sophisticated fees or this use.”

That means a debate about replacing existing taxes, the debate that has started to emerge in the US and Australia, and one that could well do with being catalysed in Canada.

Florida

What about rental cars? An article by Larry Elkin, President of the Palisades Hudson Financial Group, sings the praises of a Florida state policy to convert all toll roads into fully electronic free flow operations. I can agree with all that.  However, his concern is how to deal with rental cars when those hiring fail to pay for a toll road.   He wants regulations for rental car companies to stop them charging high surcharges for passing on toll fees.   I disagree.   Experience elsewhere suggests a range of alternative options.  For a start, toll roads are usually well signposted, so it shouldn't be a surprise to motorists.  In Australia, rental car hirers in Sydney (which has many such toll roads) receive a leaflet explaining how to pay electronic free flow tolls online or by phone.   In addition, it is perfectly feasible for rental car firms to install tags in vehicles so that tolls can be charged to a vehicle, and then charged to the hirer at the end of the hire, or to have accounts based on number plates which also enable the same thing.   Given the rental car industry is competitive, with low barriers to entry, it seems more likely that suitable solutions will be developed by providers working with toll operators than some sort of government regulation.

Indiana

Debate over the privatisation of the Indiana Toll Road continues.  This time in the Evansville Courier and Press (Indiana), the Press Secretary of Indiana's Governor, Mitch Daniels, counters an article by a journalism lecturer.   She claims the sale helped fix the state's finances and provided a structure within which tolls could be increased to allow the road to be upgraded.  The view she is countering is that the lease meant revenue that would have come to the state would be going to a foreign private company.   Interesting the debates in a country sometimes held up to be the bastion of free market capitalism.

Budapest congestion charge in 2013?

Hungarian financial paper, Napi Gazdaság, leaked a draft budget last week suggesting that the Budapest owned public transport company, BKV, is to cease receiving central government subsidies from next year. The speculation is that the city of Budapest will be expected to make up the difference with a congestion charge. Budapest is already required to have a congestion charge as part of a deal it struck in receiving European Commission funding for new metro line M4.

According to the Budapest Times, Mayor István Tarlós said that around 15 Billion Hungarian Forints (about US$64 million) is needed to make up the difference, and options for congestion pricing for the city are likely to raise between 20 and 40 billion Forints (US$85 million and US$170 million) per annum. Budapest does have chronic traffic congestion, as car ownership has increased significantly in the past 20 years, road capacity in the city has not. Although the public transport network is to a good standard, the simple point is that with car ownership, people prefer to drive even if they face considerable delays. A congestion charge for Budapest intrinsically makes sense, the primary issue (as always) is what sort of system should be installed, where and what the structure of a charge should be. The Mayor suggests the cordon should be the one identified below, following one of Budapest’s inner ring routes. 

 

However, I suggest it may be more worthwhile to have lower charges for crossing a wider number of zones, to better target congestion by spread the charge equitably according to time of day, location and direction of travel. 

 

However, if it is intended that something be operational in a year’s time, it is already too late to get started. Even if an option was selected today, it should take no less than two years to get installed, tested and operating a reliable system for users, including providing the necessary information and publicity (and enforcement systems) so that it operates in a way that is most acceptable to users. Given rumours that the Hungarian government is highly resistant to the use of overseas consultants and contractors, it seems unlikely that Hungarian only companies could do this quickly, given that road pricing experience in Hungary of this nature is limited to the (admittedly reliable, efficient and well functioning) motorway only electronic vignette system. 

Work is apparently underway on the “limits” to a congestion charge, suggesting that it has already been decided that it will be a single cordon based scheme, although decisions on whether it is an area charge, whether it will charge inbound AND outbound traffic, and at what times and rates, do not appear to have been made. 

 For Budapest congestion pricing to proceed, it needs work done not just on traffic flow (which will change in multiple ways once pricing is introduced), public transport capacity and technology, but also customer service, enforcement/compliance and business rules necessary when dealing with people who have little exposure to paying to use roads that were previously uncharged. 

 If it can do it well, it will not only help provide funds for public transport, but also the city’s road network, significantly reduce congestion, improve the attractiveness of walking, cycling, river, metro, tram and bus services, and improve air quality. It also would be the first large city in the east of Europe to have taken such a bold step forward. Given that it has to happen, the city and the national government need to move fast to make sure it can happen in a way that delivers the greatest gains for the city in terms of congestion reduction, improve air quality and generating net revenue. At present, there is not much evidence of the right amount of action needed to ensure this will happen. 

In my previous article on Budapest congestion pricing around a year ago, I noted the city does not have legal authority to introducing pricing in itself – there needs to be national legislation to permit it. Until that is passed, nothing much is likely to be able to happen beyond planning. 

Local support?

Curiously, a website has been set up by economist Szilárd Erhart, which appears to be promoting the idea (the English sections appear to not have been updated for a few years, but Hungarian is kept up to date). It isn’t common to find private citizens advocating for road pricing, but good on him.

Bangladesh road pricing?

This report from BDNews24 suggests the Bengali government is seriously considering it as an option. The country’s Finance Minister, A M A Muhith believes introducing road pricing across the country would reduce congestion and generate funds to improve road maintenance. 

The report states that “Under the plan, he said, in order to ease traffic congestions, sedan cars should not be allowed to ply on the city roads unless three passengers travel together. "Otherwise, extra toll should be imposed." In short, some sort of HOT lanes, or a congestion charge for all but high occupancy vehicles. Unsurprising, given Mr Muhith is an economist. 

An article in the country’s Daily Star newspaper elaborates that the Minister is interested in introducing tolls on roads and bridges “wherever possible”. It was supported by Transport management expert Prof Shamsul Hoque of Bangladesh University of Engineering and Technology in principle, but he claimed it couldn’t work without more public transport. In a city like Dhaka, this is unsurprising, as there is no Metro system as of yet, and bus services battle with gridlocked roads, whilst commuter rail services serve relatively few routes. However, there has been some useful construction of major highways, yet these remain inadequate with insufficient orbital links. In short, urban road pricing in Dhaka would need to be matched by a medium term strategy on highway construction, reform of the bus system and consideration of how to make best use of railway corridors (including development of new ones underground). 

A bigger issue is alluded to in the article, which is that the state and local authorities do not effectively enforce existing traffic laws on safety.  It is likely that having a good six months of hard enforcement followed by ongoing efforts may address congestion in itself, by getting some drivers and vehicles off the roads, but that's another issue.  As such it seems practically impossible to effectively introduce any form of tolls or road pricing that do not involve manual barrier controlled toll booths, if the enforcement regime is not robust. Bangladesh could undoubtedly do with a more robust source of funding for its highway infrastructure, but this should be a matter of a couple of parallel tracks.

 New highways where a toll booth is unlikely to cause congestion problems, can always be tolled. That should be happening now, as it is happening in neighbouring India. However, for the nationwide network the pre-requisite has to be the motor vehicle registry and enforcement of any vehicle registration requirements and basic traffic laws. For if you can’t effectively fine motorists who pose a risk to others on the road, you wont be able to enforce a road pricing system that is dependent on mailing fine notices to vehicle owners. 

Yet if Bangladesh, a country of over 150 million people, with average GDP per capita (PPP) of around US1,700 a year, wanted to, it could consider a Dhaka only road pricing system if that was empowered to enforce, rigorously, against motorists. Such a system could catalyse improvements in safety enforcement, vehicle registration and allow for more road capacity for buses to make a bigger difference. It would also complement the proposed metro. However, this sort of step change would cost serious money in the short term, and would need, in my view, a dedicated traffic police function. 

Yet although Bangladesh is vastly different from many countries considering road pricing, the fundamental problems remain the same: 

- Lack of funds to maintain and improve highway infrastructure; 

- Congestion on roads where demand grossly exceeds supply.

Hopefully the Finance Minister, Mr Muhith, will consider getting some serious consultancy work commissioned on options for his country, which ought to range from a Dhaka only pilot, to the use of fuel tax and motor vehicle registration taxes as interim steps. In any case, it is refreshing to read about any senior politician who understands the value of road pricing as a potential tool to address financing and congestion issues.

Update, changes soon

Readers

I have been offline for a few weeks for unfortunate personal family reasons.  Apologies for this, I intend to return to "regular service" next week, following the Queen's Diamond Jubilee.

I look forward to having more regular articles, a series of minor catchups on the sector and to dedicate a little more time to updating on tolling and road pricing across the world.

Regards

Scott Wilson

Mileage based usage fees - distance based charging - vehicle mileage tax - a future?

I just returned from the International Bridge, Tunnel and Turnpike Association (IBTTA) Symposium on Mileage Based Usage Fees (MBUF) in Jersey City, New Jersey, USA, where the main theme was around whether such fees could replace existing forms of charging road users as a source of funding for highways.

Terminology

Before I get onto some key conclusions from that Symposium, it is worth clearing up terminology.  MBUF is the latest acronym applying to something that is also called VMT (Vehicle Mileage Tax).   What is common with all references is that it is a form of road pricing based on distance travelled.  At its simplest, it means a vehicle pays on a per kilometre (or mile) as distinguished from traditional tolling which I describe as "point based" charging (whereby the chargeable event is crossing a tolling point, regardless of how far one travels), or even the amount of time spent on a network ("vignette" systems in Europe are the closest parallel to that, but the London congestion charge is effectively the purchase of 11 hours access in one calendar day to the area subject to the charge).

In the UK, the acronym "TDP" has been used to describe "time distance place" charging, primarily because the economic advantages of distance based charging primarily arise from the ability to charge road users different prices at different times on different roads.  This means truly economically efficient road pricing that could target congestion, and see revenue and pricing related to infrastructure costs. The UK's road pricing feasibility study in 2004 estimated road pricing could save the UK economy £12 billion (US$19 billion) a year in congestion costs - which is 25% more than total spending on highway infrastructure by central and local government.   In effect, delays would be halved as severe congestion was priced off the network at peak times, either suppressing trips or shifting trips into other modes or less congested times of the day.

It's about revenue

However in the USA, the driver for distance charging is not the benefits that could come from the "TDP" model, as attractive as it is for transport economists.  It is more fundamental, it is about revenue.

In the USA, a significant source of revenue for highway funding is hypothecated fuel taxes (or "gas tax" as it is called there).  This has been under pressure for two reasons, both of which one presenter at the forum (Travis Dunn) estimated have been equally responsible for creating a "challenging" funding environment that means revenue is now (at the federal level) 30% lower than budgeted expenditure.  Fuel taxation in the US is at the federal and state levels, and while the situation in each state varies, by and large a majority of states - and the federal government - no longer collect enough revenue from fuel taxation to fund the maintenance of the highway network.

The two issues are:

-  Inflation eroding the purchasing power of fuel taxation faster than politicians are able to increase the tax;

-  Fuel efficiency of vehicles eroding the per mile revenue per vehicle.

Why not raise fuel taxes?

In the US, the political environment is absolutely toxic around increasing fuel taxation.  For the Federal Government and most states it is pretty much impossible to increase fuel taxes according to inflation, let alone to catch up with the rising fuel efficiency of vehicles.  Even given that, the fuel efficiency argument suggests serious equity issues arising if fuel taxation is increased, and the people able to avoid this are those that either live parallel to viable public transport alternatives (which will always be very few) or those who can afford new fuel efficient vehicles (again, most car owners buy second-hand vehicles).

An additional argument is the predicted rise of electric vehicles and plug-in hybrids, neither of which use gasoline as a fuel.  If either take-off as an option, then fuel taxation is simply useless as a revenue raising source, and it raises equity implications as well, given that most who purchase such vehicles will not be those on low incomes.

The obvious answer for Europeans is to raise fuel taxes in the meantime, given that is exactly what European governments do.  The UK government infamously had a fuel excise "escalator" that increased fuel tax every year by inflation plus 3% (or 5%) since 1993.  That was not to raise money for transport, but as a general revenue source as the revenue today is around four times what is spent on roads by government (and none of it is hypothecated).  Of course this has now become politically toxic as well, as the UK government cut excise duty by 1c/litre last year, to provide some relief on fuel prices (given increases in the wholesale price of petroleum), although it is due to rise by that amount and more (£0.0302 in August 2012 or US$0.184 per gallon), simply as a measure to reduce the overall budget deficit.

Although the politics in Europe make such rises difficult, they are almost impossible in the US.  The rise of the anti-tax Tea Party driving part of the Republican Party agenda means that proposals for such rises are vehemently resisted, and such opposition is popular among voters for fairly obvious reasons given the prevailing economic climate.

Even if it was not so difficult, the fuel efficiency/alternative fuels issue means that such increases may not be sustainable in the long term.  So rather curiously, debate and discussion among transport policy and operational professionals has moved to a truly long term sustainable solution - distance based charging - as the US political environment is making it impossible to agree on the obvious short term solution of increasing existing charges (or drastically cutting back existing expenditure programmes).

Increase other taxes or reduce spending?

The other options are barely considered at all.  One would be increased annual ownership taxes (registration fees), but these face exactly the same political pressure and also present their own issues of equity and enforcement.   Increasing the cost of owning a vehicle reduces mobility overall.  Even the small minority of Americans who have alternative commuting options are almost certainly likely to own a car, so to penalise those who may use a subway, bike or walk as much as those who may drive into downtown Manhatten or San Francisco, appears perverse.  

The other obvious alternative of insufficient revenue is to check the efficiency of existing expenditure.  To discuss this is outside the terms of reference I set up for this blog, but my observations over the years do suggest ample scope for US federal, state and local agencies to make substantial efficiency gains in:

-  Highway maintenance using asset management systems and long term performance specified contracting to drive efficiencies in total lifecycle management of networks;

-  Capital programme spending based on prioritisation using benefit/cost criteria rather than politically driven "pork barrel" or subjective "fair share" criteria based on perceptions of fairness;

-  Public transit programmes which are heavily capital intensive (more rail than bus), built and managed by public sector operators rather than private contractors, with poor farebox revenue recovery also reflecting cutting corners on service quality/frequency as marginal cost pricing (including peak charges) are virtually unknown.

I'm sure that a fair proportion of the existing gap could be bridged by improving the quality of expenditure, the management of assets and operations, and use of private contractors.  However, that conversation and debate is not being had.  In the longer term this still will not be enough, as there are significant long term deficits in maintenance and renewals on many roads.

So what's happening about MBUF?

The conclusion of many in the US surface transport sector is that there needs to be a shift from fuel taxation to road usage based taxation.  Some suggestions are around greatly expanded use of tolls, where possible, but this Symposium was about something bigger than that - which is distance charging.

Oddly enough, there is little discussion about the fact that four US states already have a weight/distance tax for trucks which is similar to the systems in place in New Zealand and Switzerland.   Oregon, New York, Kentucky and New Mexico all charge trucks for use of their highways on a weight/distance basis in order to better recover the costs of highway maintenance.

However, it is Oregon leading the way on studies and a forthcoming pilot for charging cars on a mileage basis.  I'll write later about Oregon, but in essence what is progressing now is a forthcoming pilot for electric cars to be charged based on mileage.  Why electric cars?  Because they are a small proportion of the fleet, it makes programme development economical and possible to reduce risks with such a small startup.  They also do not pay fuel taxes now, so the argument that it is equitable to charge them on the basis of distance, is widely accepted in the state.   If it is agreed that electric cars move onto such a system, then there is potential to extend it to plug-in hybrids, other hybrids and other unconventionally fueled vehicles, and eventually the most fuel efficient conventionally fueled cars.

In short, Oregon is developing a platform that could enable a long term shift away from the "gas tax" to MBUF.   Other states are also undertaking studies.  Washington, Nevada, Colorado and Minnesota are all notable in this regard.   However, Oregon is widely acknowledged as the leader.  The Federal Government appears to have washed its hands of direct interest in any of this, for political reasons.   What appears to be happening is that funding for the Federal Programme is being approved, on a very short term basis, using general spending to cover the deficit in revenue from the Highways Trust Fund.  The states are pursuing their own initiatives because they, quite reasonably, think that as fuel tax increases, ownership tax increases, transfers from other taxes and cutting expenditure are not sustainable, MBUF are.  So the debate continues.

Outside the USA?

Of course distance based charging is not new.  Even excluding the handful of US states with rather simple paper based truck weight/distance taxes,  New Zealand has been a pioneer with distance based Road User Charges (RUC) since 1978 for all vehicles over 3.5 tonnes on all public roads, and all diesel vehicles (including cars, vans and other light vehicles).  Switzerland introduced distance based charging, called the LSVA, in 2001 on all vehicles over 3.5 tonnes on all public roads (after a referendum).  Germany more famously introduced distance based charging, called LKW-Maut, in 2005 on all trucks over 12 tonnes on all motorways (and some A roads).   Austria introduced distance based charging, called Go-Maut, for all vehicles over 3.5 tonnes on motorways in 2004.   The Czech Republic, Slovakia and Poland also have similar systems using different technology.  French and Belgian administrations are progressing such systems for introduction in the next couple of years, with the Danish government announcing it intends to introduce such a heavy vehicle charging system as well.

Watch this space

From economics, policy and technological points of view, distance based charging of vehicles is by far the most interesting concept of any form of road pricing.   It is directly tied to use, and has the potential to vary by factors that directly influence infrastructure costs and the efficient use of the infrastructure.  Debate on shifting from existing fuel and ownership taxes to distance based charging has only emerged in the United States in the past five years, and is also emerging in Australia.  The systems in Europe have been driven by the desire to gain revenue from foreign truck operators using national highways whether or not they ever pay fuel tax.   In the US and Australia, that dimension has largely been ignored (although it may prove lucrative for some states in both countries), but is more about replacing other taxes.  The questions arising from this concept form a very long list, and will challenge not only existing tax mechanisms, but also the management and governance of highways more generally, the allocation of expenditure on them and will mean, in effect, that all roads can be "toll roads".

The drivers of this debate are political and technological.  There are also substantial political barriers to progress on MBUF in the USA that cannot be underestimated, as motorists view paying as being a negative regardless of the means used.  However, the fact that most policy makers have started acknowledging that a shift to MBUF/distance based charging is desirable or even inevitable, is an enormous first step along a long path of transition.  For now the biggest issue is what such a transition will mean, and how to do it in a way that achieves public and political acceptability.  It isn't the technology that is the problem - it is how to address the enormous bubble of cynicism, distrust and ignorance around charging for using roads and spending money on roads that exists today.

I will be writing up a few points on the Symposium in coming weeks, focusing on some of the critical points as I see them in promoting and developing MBUF systems, acknowledging some key presenters.  Only a decade ago, it was Europe that was at the forefront of moving on road pricing with studies and interest in pricing to relieve congestion and better price road use to reduce externalities and finance infrastructure.  Today, that centre of gravity is moving to the United States.  Hopefully this will mean lessons learnt across continents in this sector can be shared, so that workable, affordable, acceptable and efficient options can be embraced in the years ahead.

Last day for submissions on UK heavy goods vehicle road user charging: UPDATED

THIS DEADLINE HAS NOW BEEN EXTENDED TO FRIDAY 27TH APRIL

Today is the closing date for public submissions on the proposals to introduce a truck (over 12 tonne) road charging scheme in the UK.

Submissions can continue to be made on the UK Department for Transport website here, with online forms.  I reported on the proposals before here, but in summary the intention is to introduce a vignette system involving pre-purchase of access rights to the highway network based on multiples of 1 day, 1 week, 1 month or 1 year as follows:

- It would be required for access to all public roads in the UK;

- It would apply for goods vehicles of 12 tonnes or over;

- It is not part of the Benelux/Danish/Swedish Eurovignette system;

- UK registered vehicles liable will have their vehicle excise duty reduced commensurate to the price of an annual vignette (although a small proportion will pay more);

- Revenue will not be hypothecated for highways expenditure;

- Vignettes will not involve stickers or labels, but will be an electronic record of payment enforced by Automatic Number Plate Recognition technology (similar to the E-Vignette in Hungary).

In my view, it is a simple system designed to capture the small proportion of foreign lorries that are prevalent in the South-East of England, and will generate a small amount of revenue, and have a small positive effect on the competitive neutrality of UK vs Foreign haulage firms (the Ireland-Northern Ireland situation may be more interesting).

An interesting dimension to the consultation is the question about distance based charging as an alternative. 

These are:

- What do you consider to be the likely advantages and disadvantages of a charging system based on distance travelled (as in Germany) as opposed to a time-based charge?

- If a distance-based charging system were adopted, should it apply to all roads or only certain categories of roads?

- Would you prefer a distance-based system even if this meant large cost increases or UK operators?

(Yes that was a typo it should be "for" not "or" - shame upon the Department for neglecting this)) 

From an economic efficiency perspective, I am a strong advocate of distance based charging, but it would open up the hornets' nest of refunding fuel duty in the UK - which I can understand the Treasury would be against.  Vignettes plug an issue with foreign lorries, but little else.   It is a mere transfer from vehicle excise duty to vignettes for UK hauliers, it does not address the cross-subsidies that mean that short haul lighter lorries proportionately pay more - relative to the road wear and tear they generate, to the longer haul heavier lorries.

The implication is that a distance based system should necessarily mean large cost increases.  It is perfectly feasible to design a system and charging table that simply reallocates the revenue currently collected amongst vehicle classes, and then addresses the issue of collection costs.  Yes, ANY form of direct charging of users will cost more than taxing some proxy for it.   It would be cheaper to tax people buying appliances than to bill their electricity usage, but the big gap is the economic distortions caused by existing forms of taxation (see the post below on the NSW Financial Audit).

Strangely, the UK government is keen to analyse indirect economic benefits and the more amorphous and controversial concept of "wider economic benefits" to justify support for a £15.8 (US$25.3) billion high speed railway.   Yet similar analysis has not been done of the costs and benefits of existing forms of motoring taxation relative to road pricing.

That is the gap in the current policy analysis around motoring taxation in the UK today.

New South Wales State Financial Audit report recommends road pricing

The Sydney Morning Herald reports that the former NSW Treasury secretary Michael Lambert has been conducting an audit of the state's finances for the recently elected (one year ago) Liberal/National coalition (centre right) administration (which has followed a 16 year long Labor administration). His work was finished last year, but received little attention, apparently because the state government has lost interest in reform.

One of his key findings was that "vehicle taxes" be replaced with a Sydney wide congestion targeted urban road pricing scheme, which would apparently generate economic benefits of A$720 million (US$747 million) per annum through reduced delays. The news report says nothing more, but the complete report on public finances in New South Wales is available on the NSW Treasury website here. There is much excellent analysis here for anyone interested in public finances.

What does the report say?

The relevant sections are in Chapter 13, and is worthwhile reading for those who still think that vehicle ownership taxes and fuel taxes are optimal ways of charging for road use.

The report analysed the "excess burden" of taxes, being the cost of taxes to the economy, over and above the revenue acquired by the government. These costs are deadweight losses in reduced economic activity because of the loss of consumer welfare from the higher price of what is taxed.

Taking those costs, administrative costs and the wider economic costs and benefits of different ways of charging road vehicles produces some fascinating conclusions.

Vehicle registration tax creates an excess burden of A$474 million (US$492 million) per annum for the state, which is a loss of 25% of the value of the revenue collected from it. Remember that, because that loss is what can be theoretically abolished with economically efficient road pricing.

The report proposes replacing taxes on vehicle ownership with a state-wide flat rate distance road user charge, with charges in Sydney varying by time and location so that congestion could be targeted. The light vehicle charge would be A$0.04 per km (US$0.07 per mile). Sydney roads would, at certain times (i.e. peaks and interpeaks), have a congestion surcharge of between A$1.15 and A$3.83 per km (US$1.91 and US$6.39 per mile).

It calculated that the net economic welfare gain for the state would be A$662 million per annum (US$687 million). Another A$5 billion per annum (US$5.2 billion) is saved from reduced congestion and road maintenance costs.

A$2.5 billion (US$2.6 billion) is the revenue needed to replace ownership/transfer taxes.

A$780 million (US$810 million) of revenue alone could be generate by tolling the existing untolled portions of Sydney's orbital motorway network, using existing average prices, with peak and offpeak rates.

A national (beyond New South Wales) heavy vehicle distance based road user charge would raise an additional A$100 million (US$104 million) a year for NSW from out of state trucks using NSW roads, if it replaced heavy vehicle registration fees. That's because a significant amount of km are driven on NSW roads by non-NSW registered trucks.

A NSW only heavy vehicle weight and distance road user charge priced to fully meet the marginal costs of heavy vehicle road use, would raise A$1 billion per annum in revenue (this would also replace fuel tax for heavy vehicles).

The remainder would come by charging light vehicles across the rest of the state, including the non-motorway network in Sydney.

While administrative costs are estimated to cost anywhere between 10 and 25%, so charges would have to recover A$2.5 billion in revenue AND an additional A$250-A$750 million.

This is a common argument against road pricing, except the report points out that introducing road pricing more than offsets the administrative costs by:

- Eliminating the deadweight excess burden of existing taxes would save 26% of the cost of that revenue now from the economy. That net gain does not accrue to the Treasury of the state government, but is distributed throughout the economy.

- Significantly reducing the costs of congestion, producing gains of hundreds of millions per annum in time savings.

Congestion pricing, if applied on a network wide basis, charging by time, place and distance, set at the rates above to efficiency target congestion would also generate another A$2 billion (US$2.1 billion) in additional net revenue.

Instead of network pricing, cordon pricing (applied at A$10 to enter any of Sydney's 13 business districts) could generate less revenue, but risks creating congestion outside those districts and is considered to not be suitable for Sydney.

Expanding tolling on major routes is also seen as unsuitable because it would divert traffic onto other routes.

The conclusion from the report is that there are considerable merits in shifting away from current forms of motoring taxation to road pricing.

The first step proposed is to expand tolling on Sydney motorways at prices that reflect current averages on other tolled motorways. The report proposes it be followed by renegotiations of existing concessions so that toll pricing can target peaks and have off peak discounts. It also proposes serious consideration be given to a NSW only heavy vehicle distance charging system, which if possible is consistent with a future Australia wide system. This should be followed by piloting of distance charging as an option to start a transition from existing taxes.

My view

This report is one of the more economically sound pieces of analysis on road pricing as complete replacement source of revenue from road users I have seen in some time.  It is more telling that the report actually came to this conclusion not as a road pricing study, but as a wider economic study into the entire taxation, expenditure and state treasury administrative, procedural and governance framework.   

It moves beyond the purely financial analysis of taxation, that almost always demonstrates that existing taxes have low external costs, by raising the deadweight cost of taxation and the external benefits that other forms of charging can generate by addressing inefficiencies such as congestion.  

The point is this.  Existing motoring taxes create distortions of their own, because they do not reflect the infrastructure and economic costs of providing roads.  They tax ownership and sale of vehicles (and although not included in the analysis, fuel tax does not charge road use).

Road pricing has an administrative cost higher than existing revenue sources, but its economic cost is lower and on top of that it can create net economic benefits by reducing congestion and road damage, because of changes in behaviour.

The steps proposed to move forward are worthy of further consideration. Heavy vehicle charges would be a logical and manageable step forward that would generate most of the road damage reduction benefits, a few congestion reduction benefits, but also help de-risk a wider transition.  Expanding tolls in Sydney would appear easy, but would need to be done in a way to minimise diversion risk.  The bigger leap towards shifting cars to distance charging should be done through a voluntary system to start with.

The one yawning gap in this report is fuel tax, which in unsurprising as it is levied at the Federal level, so is a Federal problem (states get a share through grants from the Federal government rather than directly receiving tax revenue).  Fuel tax is likely to create its own deadweight burdens, although it arguably has modest positive impacts on environmental outcomes.

It would be a shame if politics means that nothing is done about the road charging portion of this report in New South Wales.  However, whatever happens there I hope the deadweight burden of taxation is weighed into assessment of motoring taxes elsewhere.   What this report does is to help place Australia in the ranks of countries which are seriously considering the full economic impacts of existing forms of taxation of road use.   Let the debate continue...

Other interesting facts from the report

A$138 million (US$143 million) was raised from tolls on state roads (largely Sydney Harbour Bridge). This revenue has been growing at a rate of 9.7% per annum (nominal) over 10 years.

A$87 million (US$90 million) was raised from "plate fees" on state roads, meaning charges for those not paying tolls with accounts, but with surcharges after their number plates were detected on free flowing toll roads. This has been growing at 12.4% per annum (nominal) over 10 years.

A$1.7428 billion (US$1.79 billion) was raised from motor vehicle registration and ownership taxes in the state in the year 2010-11. Note the state has a population of 7.3 million with 5.6 million registered vehicles.

A$590 million (US$612 million) was raised from motor vehicle transfer duty (tax on selling vehicles, separate from retail taxes).

A$95 million (US$99 million) was raised from the parking space levy which is a tax on off-street commercial parking in specific parts of Sydney. Effectively a workplace parking levy of the kind sometimes proposed as an alternative to congestion pricing.

A list of highway PFPs (Privately Financed Projects) in the state is presented in Table 1.4.4 (7 toll roads) for those interested.

London Mayoral Election 2012 - Congestion Charge policies UPDATED 2

3 May 2012 will be the London Mayoral election when Mayor Boris Johnson (Conservative) will try for a second term. In 2008 he defeated Labour's Ken Livingstone, who is well known for having introduced the congestion charge to London.

As a London resident, below are the policies of all of the Mayoral candidates in this year's election on the congestion charge, road pricing and tolling specifically.  I am listing the candidates in their order of expected success.  The election is undertaken using a preferential system.  Voters choose their first preference candidate and are free to choose a second preference if the first preference is not one of the top two candidates.  If no candidate gets over 50% of the vote, the second preferences of all voters are added to the top two candidates (unless the first preference was one of them).  It is widely expected the top two contenders (based on polling) will be the incumbent, Boris Johnson and Ken Livingstone, again.  So what are their policies?

Boris Johnson - Conservative

During his term, Boris consulted on whether to abolish the Western Extension of the congestion charge zone and because of the result of that consultation, he did abolish it, whilst raising the price of the central zone to £10 (US$15.90).  He also introduced a number of changes including automatic detection based charging.  Instead of having to consciously declare for every entry into the charging zone (or prepurchase a week, month or year in advance), a motorist can register (for a fee) and be billed for every occasion only, which is a considerable saving.  In addition, those who register for this system get a £1 discount per day.  In short, this has benefited those driving in the former Western extension and those who drive regularly into the charging zone in terms of convenience, although the price has gone up in the central zone (which may be seen as reasonable to maintain a consistent level of demand suppression).

Boris's policy on the congestion charge is basically business as usual.  He has no plans to expand it in his next term, although road pricing is a long term option in the Mayor's transport strategy (which is no change from before).  The manifesto on transport (PDF) is here.

He promises to never expand the charge London wide or introduce a £25 charge on "family cars" (a reference to policies promoted by other candidates).

Nothing ambitious there, but not surprising in the current economic environment.

A minor additional policy on tolls is in relation to the residents' discount applying to the central government owned Dartford Crossing which is to call for "residents within Greater London who live close to the Dartford Crossing – notably those living in Bexley and Havering - to be given the same discount on the Dartford toll as residents of Dartford and Thurrock".

No mention of tolls for any new Thames Crossings, although they are likely to be an option for the proposed Silvertown Crossing.

UPDATE:  The debate on local radio station, LBC, last night had Boris say he would freeze the congestion charge.

Conclusion: Expect no change from Boris.  He doesn't promise no increase in congestion charge, and he doesn't promise no toll on a new Thames Crossing, but it is difficult to promise everything you wont do! No appetite for anything radical on the congestion charge, but also none to abolish it!

Ken Livingstone - Labour

Ken introduced the Western extension of the congestion charge, but his manifesto (PDF) says he has promised not to reintroduce it because to do so would be "too expensive", as would his previous pledge of introduce a £25 charge on so-called "gas-guzzlers".  He has promised to freeze the congestion charge at current prices for four years.  So he may even look as being less interested in road pricing than Boris Johnson.  This could be a tacit sign that Ken recognises that there are few votes in expanding congestion charging during an economic slowdown.

There is one interesting related policy.  He supports a smart parking system similar to the trial in San Francisco being applied to London which I wrote about last year.  That is a good idea.  It requires work with boroughs, but by providing real time information about parking availability, and adjusting parking to demand, it could improve access for motorists, and also reduce congestion.

Conclusion: Ken is getting more conservative.  This part of his transport policy is almost identical to Boris.  His parking idea has a low profile, but is a worthwhile idea that should be advanced.

Brian Paddick - Liberal Democrats

Brian came third to Boris and Ken in 2008, and given the Liberal Democrats are in coalition with the Conservatives at the central government level, it may be more interesting whether his views are closest to Ken's or Boris's.  He appears not to have a transport manifesto out yet, and his website makes no reference to the congestion charge at all.  With a month to go, it's getting late.  The Liberal Democrats at the 2010 national election supported a shift to national road pricing, is Brian Paddick getting cold feet about embracing that at a London level, or will it just be business as usual as well.   Asked by the BBC as to who his favourite Londoner is, he answered "Sherlock Holmes".  Hmmm.

UPDATE: The debate on local radio station, LBC, last night had Brian apparently calling for the congestion charge to be "reviewed" because it "isn't working".  That, of course, could result in any outcome ranging from abolition to expansion.

UPDATE 2: Liberal Democrat London Assembly Leader Caroline Pidgeon elaborates in the Guardian that the Liberal Democrats want to have the congestion charge vary by time of day, so that it targets the most congested periods, and that the charge should increase in line with any public transport fare increases.  This would be a notable improvement, and one that might even be palatable, although the profile of congestion in the central zone is unlike typical U shaped demand curves in most cities.  Bear in mind that the charge is effectively a day pass for unlimited access.  Would someone paying offpeak only be allowed access for a more limited time?  More thinking needed there, but it is definitely a step forward.

Conclusion: The party policy does appear to be to make some well motivated adjustments, it is unclear whether it will make much difference in the context of this scheme.  Still, it seems to be perhaps the most economically rational policy of them all.

Jenny Jones - Greens

To her credit, the Green Party candidate Jenny Jones has been open about the party's (and her) policy which is not afraid of expanding congestion charging.  This is by far the most radical policy on road pricing on offer.

Unsurprisingly this isn't about spending any money on roads or replacing other taxes.  It is about using road pricing as a tool to penalise and deter road use, not about economically efficient pricing.

The party commissioned a report from an environmentalist planning firm called Eco-Logica that claimed London wide charging could raise £1.4 billion (US$2.23 billion) which would be used to cut public transport fares.   Of course that would likely be opposed by most motorists, and would risk dramatically increase demand for public transport that would mean severe overcrowding if fare reductions don't get matched by capacity increases (difficult to do quickly other than for buses).   A simple objective of using road pricing to raise revenue and deter road use, much wider than targeting congestion.  She said on the BBC last weekend, the proposed charge would be a London wide distance charge averaging 32p (US$0.51) per mile, described as a "smart pay as you drive scheme".  She also said it would replace the current congestion charge.

Clearly, the intention here is to reduce overall traffic levels, increase public transport, cycling and walking mode shares and achieve a quantum reduction in the use of the road network.  Given much transport policy has had similar such objectives for some time, this is not quite as radical as some may think.  However, it is political dynamite for motorists, and small business owners who may use cars or light commercial vehicles frequently.  Still, it is not wrong to think that such an idea, if it did at least in part offset other taxes, might achieve a lot for London in reducing congestion and the environmental impacts of road use.  Using it just to raise more taxes and reduce externalities is, of course, a understandably left wing view of road pricing.

UPDATE: The debate on local radio station, LBC, last night had Jenny say she would increase the charge to £15, with up to £40 for larger vehicles

Conclusion: Courageous, logical from the Green "world view", but punishing to car owners, and the light commercial delivery and freight sectors.  However, it may come into its own in 10-20 years time, although perhaps to replace other taxes rather than simply be a new one.

Carlos Cortiglia - British National Party

Carlos has been hitherto unknown, his views on the congestion charge are equally so.  Given he represents a party that is considered to be nationalist, with socialist economic policies, it is unlikely road pricing is on his radar.   A repeated search has found no policy on his blog or the BNP website.

UPDATE:  Carlos wants to abolish the congestion charge.

Conclusion: Clear and simple and populist

Lawrence Webb - UK Independent Party

Lawrence has also been unknown.  However, he does have policies. The Low Emission Zone, which is often ignored, but which essentially charges any vehicles over 3.5 tonnes and some light commercial vehicles that don't meet minimal emission standards, would not have tightened standards.  He says he would "scrap the congestion charge cameras", which is, in effect, to scrap the congestion charge.  I don't know if he thinks he can replace it with other technology, but he does suggest using the cameras to enforce mandatory third party insurance and vehicle excise duty.

UKIP sometimes portrays itself as a party of smaller government and in favour of business and growth, so it is interesting (although not surprising) that it is rejecting the economic rationalist view of road pricing, in favour of populism.   Lawrence is the only candidate clearly opposing road pricing.

Conclusion: The only candidate opposing the congestion charge, albeit with no policy justification for the stance.  Given he is now polling at levels rivalling Jenny Jones, could it mean that London ends up being balanced between opponents of charging, and advocates of more charging?

Siobhan Benita - Independent

Siobhan is a newcomer as well, although she admitted on the BBC that she previously supported Ken.  Her website says she wont change the area covered by the congestion charge, but nothing else. Fair to presume she joins the two main candidates in supporting no change to the status quo.

Conclusion: Nothing radical here either, status quo.


Overall conclusion


It is apparent that politics around London's congestion charge have matured somewhat.  One candidate is  campaigning to get rid of it, and he is unlikely to win.  Both major candidates are campaigning on little real change to the current scheme.  One candidate is pushing for radical expansion, but she is unlikely to win either.   In short, London's congestion charge is now accepted as an integral part of London's traffic management system.  It is fair to say that expansion is not politically tenable at present, because there is little appetite to make people pay more, but similarly the value of the existing scheme is now not doubted.


Footnote

It is important to note the election is also for the London Assembly, which has some powers as well.  That involves electing representatives in constituencies and voting for parties, so there is some proportionality.  It is here that the smaller parties, like the Liberal Democrats, Greens, UKIP and BNP can get elected. What may be more influential is if the Green Party does well and gets more representation, given its radical view of the charge.  It is likely to do well from voters disenchanted with the Liberal Democrats and Labour, whereas UKIP's opposition may attract some traditional Conservative voters.  The London Assembly can't stop the Mayor, but can slow him/her down.

If it does end up being one of the two main candidates that get elected, expect little change in the next four years for the congestion charge or road pricing in London.  There are quite a lot of transport policy issues in this election, ranging from policies on public transport fares, support for minor investments in road improvements, automating the Underground and future airport expansion (or not).   These all are likely to influence how Londoners vote.   It would appear that the congestion charge is not really one of those issues anymore.

Given the politics and profile around its introduction, that is quite remarkable.  The congestion charge is part of London life and accepted as mainstream policy.