Wednesday 14 September 2011

New South Wales tolling policy has become less clear

Politics in the Australian state of New South Wales have been characterised by one very long term by the Labor Party, which won every election over the past 15 years, until March this year. The Liberal Party in coalition with its partner the National Party finally defeated Labor, and so the decade and a half of support for tolls on New South Wales highways has come under pressure, not least because of populist promises to deliver a better deal for the motorist. The new Roads Minister is Duncan Gay, who once owned a small trucking company and hails from the rural based National Party. His more recent statements regarding tolls have not exactly made policy that clear. I hope it is just about him finding his feet as a first time Minister.

The Australian Daily Telegraph reported how he wanted to scrap congestion pricing on the Sydney Harbour crossings because some people using it “have no alternative route”. Given there is a free crossing some distance to the west and there are intensive rail, bus and ferry services across the harbour, it isn’t clear what he meant. The congestion pricing is only a $A1 surcharge between 6.30-9.30am and 4.00-7.00pm compared to the rate between the peaks (although it is A$1.50 more than the overnight rate which operates till 6.30am) and (PDF report) it has reduced demand by between 0.4% and 2.8% during the peak periods on the crossing during the first year of operation (and raised around A$12 million a year additional revenue).

However, he has since said “the money needs to be found somehow” while he is still looking to find ways to scrap it. The laws of economics seem to have escaped the analysis, with little valuation of the benefits of the reduced congestion and pollution.

Meanwhile, the M2 Hills Motorway is to go fully electronic free flow in 2012 as part of a widening project, as the same government is keen to eliminate toll booths across Sydney’s tolled motorway network. It is seeking to encourage the same move for the M5 and the Eastern Distributor. All good stuff and will improve the reputation and impact of tolling.

Yet, according to Stock and Land, the same roads Minister threatened to cut tolls on the motorway, which is owned by Concessionaire Transurban. Why? Because demand on the road has dropped (and diverted onto parallel routes) because of road works. TransUrban said it would demand compensation, as it is using the toll revenue to help build the A$550 million widening project, which is the source of the roadworks. 

Somehow, the Minister thinks that the private concessionaire doesn’t have an incentive to encourage use of the road, yet its revenue depends on it. Given he has no money to compensate Transurban and no money to offset cutting the congestion pricing on the harbour crossings, the policy appears to be to find ways to cut tolls without paying for it. Certainly encouraging free flow tolling is a good step, although it needs to be matched with rigorous pursuit of evaders. 

One policy also floated is even considering bringing “all toll roads under common ownership” so that tolls could be co-ordinated. This would fly in the face of the free market credentials of the ruling party, and would go against the principle of user pays in that toll roads – currently charged at rates that reflect the costs of the different roads – but could enable a strategic view to be taken of pricing on the roads. However, quite whether it would be worth the cost of compensating private toll road owners who invested their own money in the infrastructure for the sake of returns under specific conditions, has to be questionable. 

Perhaps the state should focus more on its own roads, which are far less effectively priced than any of the toll roads?  Much more could be gained from improving the pricing and management of those roads than fiddling with the toll roads, and believe me a lot can be done.

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