Tuesday 16 June 2015

Australia: Interest grows in moving from fuel tax to distance charging

According to the Australian Financial Review, in a bold and brave step, the Australian Automobile Association (AAA) has declared that it supports a longer term shift from fuel taxes to charging road vehicles on a distance basis.  This comes on the occasion of the Australian Financial Review sponsored National Infrastructure Summit held in Sydney.

The AAA has 7.5 million members and represents eight subsidiary motoring associations in Australia's six states and two territories, and is essentially a lobby group for private car owners, but it has clearly thought much deeper about the how roads are charged and paid for than many such organisations elsewhere across the world.  It estimates that motoring taxes in Australia (including fuel and ownership/licensing taxes) collect around A$34 billion (US$26.2 billion) per annum, with spending on roads at around A$24.5 billion (US$18.9 billion). 

At present, there is no specific move from the Australian Federal Government to implement distance charging, but the debate has certainly livened up.  At present, the Federal Government is seeking to index fuel tax to inflation for the next two years, which the AAA supports as an interim measure, but AAA Chief Executive Michael Bradley wants the Government to think longer term.

Currently 47.4% of fuel tax collected in Australia is spent on roads (after rebates for major non-road users of petrol and diesel, specifically in agriculture, mining and fishing).  The AAA wants this increased to 50%, but its concern over fuel tax is one of equity.

Mr Bradley said:

"Fuel taxes disproportionately affect regional and poor people. It discriminates by geography and it's a blunt instrument that does not allow for time, distance, mass and location – any of these variables – to be taken into consideration"

It's concerned that fuel taxes fall heaviest on low-income households, particularly those in regional and rural areas with few or no alternatives but to drive. Not only do those motorists face, on average, further to drive than those in cities, but are also less likely to be able to afford the newest most fuel efficient vehicles.  

This begs the obvious question as to whether distance charging would exacerbate that, but the AAA wants such charges linked to providing a service, rather than being treated as just another tax.  It is also supporting the use of congestion charges as part of the system, which will mean lower costs for off peak and rural driving.

The report says:

In a submission to the government's tax white paper, the AAA said roads are the only remaining major public utility not subject to usage charges that can vary by time of day, as is the case for telecommunications, gas, water, electricity and other forms of transport.

Notwithstanding that time of day charging for water is not common, this is the key point.  The AAA is supporting a shift to direct charging that replaces existing taxes and the idea of a trial where users are charged by distance, and get a rebate in fuel tax when they fill their vehicles.

Federal Government has mixed views

According to the news website news.com.au, Assistant Infrastructure Minister Jamie Briggs is "interested" in the idea and seems to want further discussion of it.  His chief concern is around estimates that congestion costs could rise to A$31 billion per annum by 2031, and that building new roads and public transport wont adequately address this.  He said:

“In today’s world we generally accept that you pay for the service you receive. Road pricing remains the exception,” 

This implies a genuine interest in a more commercial, consumer based way of charging for and managing roads.  However, his more senior colleague, Deputy Prime Minister and Infrastructure Minister Warren Truss is much more sceptical claiming that distance based charging using satellites wouldn't pass the "pub test" and that the public wouldn't be ready for charging by time of day.  His quote was:

"I think people still like to be able to visit their girlfriends without the whole world knowing – or their wives knowing,"

This resurrects the widely held fear that such charging would mean an end to privacy as to vehicle trips, even though it is clear that options to preserve this can be maintained.  Still, when rejection is about public acceptability, it is much more intelligent than opposing it outright.

The Labor (opposition) Party's Infrastructure spokesman, Anthony Albanese said road charging would only work if "the right policies were implemented", which has to be the tautology of the National Infrastructure Summit. 

Greater state and private interest

Mike Baird, Premier of New South Wales said that government had to explain the benefits of tolling, and that the state government's priority was to make the wide range of tolls on roads in Sydney more "efficient"

Whereas the Chief Executive of toll road owner, Transurban, Scott Charlton argued that fuel tax income is "drying up" claiming that replacing a 20 year old car with a new one costs the Federal Government around A$350 (US$270) per annum in revenue.  He said:

"The driver of a late model fuel efficient car is paying far less in fuel excise than the driver of a less efficient car ... despite them having the exact same impact on congestion and on infrastructure"

Which is dead right, although some would argue there is benefit in lower environmental impacts, this doesn't address the infrastructure or congestion issues.  Transurban is to introduce a "pilot study" in Melbourne to test the impact of three versions of road pricing on motorists' behaviour.  These are:
- Price per trip/access charge;
- One off charge based on anticipated distance;
- Distance based charge.

Also included in the pilot are variations based on time of day and CBD based charging.  It is unclear how this pilot will work, particularly outside its own roads, but it is clear Transurban sees a business case for supporting wider road pricing in Melbourne.  

Wider issues

Charlton also indicated that mass adoption of driverless vehicles may be expected by 2030, which could change car use and reduce the incidence of second car ownership and traffic levels overall.  

John Daley from the Grattan Institute (a thinktank) has claimed that Austalia has stagnant car use, with statistics from the Bureau of Transport Infrastructure and Regional Economics claiming passenger kilometres by car are stable, which suggests the assumption of continuous growth in car use may be wrong (but also that increased road capacity will necessarily induce more traffic).  

In other words, assumptions about future endless growth in car traffic seem to no longer hold true, at least in the Australian context (although similar observations are being made in some other developed economies).

Studied to death

None of this should be that new, given that the Australian Productivity Commission and the Henry Tax Review have both recommended a shift away from fuel and ownership taxes to distance based charging.  The problem for Australia is jurisdictional.

Fuel tax is charged at the Federal level, so moves to replace that would have to come from that level of government, although the size of the country and the complications of having States with varying degrees of interest in distance charging means that there is some reluctance at the Federal level. However, vehicle ownership/licensing/registration taxes are charged by States, which suggests moving from those taxes to distance charging could happen at the state level.  Yet, it is far from clear that it would be worth it just to replace much of those taxes at the state level.

The suggestion of a pilot at the Federal level would make more sense, but what is needed is not just a strategy for charging, but what to do with the money, how charges will be set and how to transform roads into a service.  If one state can work with the Federal Government, and start a pilot which addresses both fuel and ownership taxes, it would suggest that there could be some way forward. However, Australian politics typically sees different parties governing at state and federal levels. 

The clear impression is that the Federal Government is waiting on a state pushing for distance charging, whereas states are more enthused about a Federal push.  For now, it appears more discussion is the future, with the hope that the more it is talked about, the more work might be done to make some progress, implement a pilot, and start a transition down a path of reform that can be largely agreed upon.

That would mean:
-  Option to replace most of ownership taxes with distance based charges;
-  Partial rebates of fuel taxes for those paying distance charges;
-  Creation of new structures to set charges, distribute revenues and for roads to be managed on a more commercial basis;
-  Options to move from pilot trials to full scale charging either by geography, vehicle type or some combination of both.

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