Friday 15 April 2016

Australian Federal Minister comments on road pricing

Australian Federal Minister for Major Project, the Hon Paul Fletcher, made a speech on 3 April about infrastructure spending (full speech is here).  Although the main point was that large infrastructure projects need to improve productivity for them to be worthwhile public investments, he also discussed road pricing.  The speech as a whole is worth reading for anyone interested in the modern day challenges of funding and managing transport infrastructure (it cuts across road, rail and airports), but I am focusing here on road pricing. 

The key point is that road pricing is supported over the long term, and that it requires community acceptance and understanding, which itself means demonstrating that there are net benefits in moving towards road pricing.   He wants the Federal Government to work with the states in developing answers to key issues, such as rate setting, but also minimum standards of service (this can be both in terms of maintaining infrastructure but also congestion levels) and what is called "community service obligations".  In Australia, this term is used in other sectors to mean provision of a basic service at a common price across the whole geography of the country, regardless of the cost of provision and typically includes postal services and the basic landline telephony service among others.  Clearly in Australia one issue is very long lightly trafficked roads that, if the users were charged the full costs to recover the fixed costs of those roads, they would simply not use them (and the consequences at the communities and properties they access would be abandoned).    

The Minister indicates that road pricing for heavy vehicles is a "logical first step" and the Heavy Vehicle Road Reform programme is the current process for progressing that.  Certainly I agree, although the experience of private vehicle pilots in the US may well be helpful in the long process of incorporating light vehicles in due course.  The line between commercial vehicles and private vehicles is a big one to cross in terms of public acceptability.

The segment from the Minister's speech on road pricing is reproduced below in full, the footnotes are links to specific reports and sources:

In its 2014 inquiry into Public Infrastructure the Productivity Commission recommended that “Well-designed user charges should be used to the fullest extent that can be economically justified.”[16]

Let me mention two areas: road pricing and value capture.

In the public policy debate over recent years, there have been a number of calls to consider the introduction of road user charges or prices in Australia.

Last year the Government has received the report of the Harper Review into competition policy. One of its recommendations was:
  • Governments should introduce cost-reflective road pricing with the aid of new technologies, with pricing subject to independent oversight and revenues used for road construction, maintenance and safety…indirect charges and taxes on road users should be reduced as direct pricing is increased.[17]
In its recent 15-year Plan, Infrastructure Australia recommended that the Government should commit to the full implementation of a heavy vehicle road charging structure in the next five years. The Plan also spoke about a path towards road pricing for all vehicles over 10 to 15 years.

As well as voices from within the federal government, we have also seen state government advocacy. For example South Australian Premier Jay Wetherill last year had this to say in a speech to the National Press Club:
  • It's getting harder for governments to meet the demands of road users from general taxation revenue, and roads remain a sector that relies heavily on taxpayers to fund new projects. I, therefore, propose that we establish a national heavy vehicle road-user charging system run by the Commonwealth in which State-based registration and Federal based fuel-excise charges are replaced by a charging system based on mass, distance and location.[18]
In our response to the Harper Review last year, the Federal Government indicated that we supported road pricing but as a long-term reform option.

This is because we will need to be satisfied that there is a reasonable degree of community acceptance and understanding of any reform in this area. In turn, this will require a demonstration that the benefits from a broader use of direct road user charging would exceed the costs.

In considering this issue, the Australian Government expects to partner with states and territories on reform and give careful thought to community service obligations, service level standards and how best to structure charges across road networks.

Partial market reform via road pricing for heavy vehicles is a logical first step in any exploration of pricing for all vehicles.

Another area where there is scope for greater application of market principles is the use of ‘value capture’ as a means for funding major transport infrastructure projects.

It is widely recognised that well designed and located transport infrastructure can sharply increase land values.

By taking the right approach to value capture we can create a win-win proposition—in which landowners contribute towards the cost of new infrastructure but in exchange receive an increase in value which greatly exceeds the amount of the contribution.

A great deal, of course, comes down to the design of the value capture mechanism.

In coming weeks we will issue a discussion paper calling for comment on how the Commonwealth could best encourage value capture as a means of contributing towards the cost of infrastructure projects. We need to move from the principle to a discussion of particular mechanisms.

Bear in mind that this year is Federal election year in Australia, it shows how far public policy in Australia has come that this sort of statement is not expected to create a political uproar.  In other words, the opposition Labor Party does not essentially disagree with the idea of a transition towards road pricing.   The date of the next Federal election has not been announced, but is likely later this year.  Polling has both the governing Liberal/National coalition and the opposition Labor Party very close, but I doubt that even if there is a change in government in Australia, that it will mean this approach to road charging policy will change notably.

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