On the political economy of the road user charging debate

Policy makers, researchers and industry all more or less agree that we are going to need to change the way we pay for roads as the current excise and motor vehicle tax regime is expected to fail.  But politicians are a different story, with the current anti-tax environment in politics disappointingly preventing any meaningful discussion on the matter (or any tax reform discussion at all), for fear of either party being accused of bringing in a ‘big bad tax’.  This limits the ability of our national leadership to bring us to what is expected to be a productivity enhancing reform, as road use and construction is managed with more connection to quantified need.

But in discussions recently, it has become clear to me that a greater understanding of this political aspect of the discussion is required, in order to understand how best we might move this conceptual discussion further into reality. And indeed, the conversation at the policy maker and academic level around how to use road user charging (RUC) mechanisms might be creating its own confusions for politicians and the public - the conflagration of the two problems behind the need for road user charging might risk achieving real reform of the sector, if part of the discussion is a political deal breaker….

The road user charging (RUC) discussion is really two discussions, that have merged into one given the role that RUC will play in each discussion.  On the one hand, there is a discussion about funding - how do we provide road capacity in the face of falling funding from extant road funding mechanisms?  On the other hand, we have a discussion about how to manage road capacity in the face of growing population and the congestion pressure it brings.  A RUC mechanism is a possible policy solution to both of these problems, but important distinctions in their policy outcomes and indeed opposing ideologies present a conflict that clouds the debate.

RUC as a funding mechanism is a taxation discussion. More accurately, it is a taxation equity discussion as we move from a collection of imperfect and inequitable taxes to a user pays model of road maintenance and capital funding.  This has generally been couched in terms of a per kilometre charge, with different levels of charge for different weights of vehicles, with these charges based on the dollar costs of road provision, which can be determined reasonably easily with accounting treatments.  The user pays principle has been utilised to improve equity and efficiency throughout the Australian economy over the last 20 years, and is generally accepted by the population because of this equity improvement.  And should funding RUC implementation be hypothecated to roads it comes from (instead of disappearing into general revenue) and be accompanied by the removal of existing inefficient taxes (mainly fuel excises and motor vehicle taxes), the equity argument will be further reinforced.  In many ways, it will resemble another major reform, the Goods and Services Tax implementation, which replaced many different taxes with one simpler and more conceptually straightforward tax, but were also seen to be equality building given the flat rate the GST uses (subject to some exceptions).

RUC as a congestion management tool on the other hand is different. It is a consumption discussion where prices are used to limit such consumption and a very different policy result. The way we set these prices is (compared to funding RUC) not well understood in terms of underlying costs, even by policy makers and academia, and in some of the cordon pricing schemes in other jurisdictions overseas, is somewhat arbitrary and the funding is not linked to congestion reduction activities.  It is hard for consumers to understand why these are the way they are and therefore hard for them to accept making payments for something that was previously free. 

But more importantly, without that understandable basis for charging they may see it as an affront to their current day to day behaviour.  Ideologically, from a liberal/libertarian view, the car can be seen as an extension of the individual.  Limiting the use of the car through a congestion RUC measure may be seen (either explicitly or more likely implicitly) to be a limitation on the individual.  And so any discussion in this area will encounter resistance, especially from governments that are liberal/libertarian minded, or a population that is used to having fundamental freedoms, such as that has been promoted through the car since the 1930s and that has in many ways formed such a fundamental part of the development of Australian communities since then.  And the implementation of a cordon charge, which clearly swathes of the public will see through the lens of the wealthy and not wealthy, will attract particular attention given the perception that the wealthy will be able to afford to drive.  The not wealthy (which many Australians – rightly or wrongly – see themselves as) will have to use the ‘lesser’ public transport options which may cost them more when the time cost of public transport is taken into account ^[1].  And some people might see the cordon charge as being a thing that makes the drive for the wealthy people easier, whist the rest of us are lumped on overcrowded public transport.  Probably thinking of these things, political leadership simply won’t even entertain the idea of these charges, and immediately shut down debate before it can begin.

Clearly, for each of the problems (funding and congestion), a specific RUC mechanism will need to be designed for each of these situations to achieve a first best solution.  Across both, GPS devices in vehicles to monitor specific routes and a system will levy the appropriate charge based on the road used.  As above, a funding RUC will likely set a price on road use per kilometre (by type of vehicle) across the whole network, whereas a congestion RUC will involve a separate charge (somehow) for the use of particularly overused parts of the network.  However, whilst the congestion RUC won’t recover total road network costs, the funding RUC will no doubt help manage congestion, to some degree, given it will put a price on road usage that is currently not explicitly priced, and lead to different choices by drivers.  Studies in the Netherlands have suggested that in their case, just doing this will reduce road use by something similar to the reduction in use that Sydney sees when it is school holidays, which we all know is a noticeable amount.  Imagine paying for the roads we use on a user pays basis, and having lower traffic all year round?  And once the technology and process is in place, congestion charging will be a minor step change to implement, once we see where it is needed and how to charge for it.

As researchers we do have a responsibility to identify the first best solution to problems we encounter, however as policy discussants we also must look at how second-best solutions might be the more achievable compromise that delivers on more outcomes than a non-implementable first best solution might.

^[1] Assuming that public transport is held constant.  Improvements in public transport, implemented either in conjunction with cordon charging or subsequently as a result of new market signals provided through changed transport consumption patterns, may reduce this time cost to users.  This may be achievable if congestion RUC is hypothecated to congestion reduction (a topic for another day).