Recently the question of road charges for electric light vehicles – cars – hit the headlines. Opinions split into: those who want such charges to collect funds for road building; those opposed to such charges because they might slow the take-up of electric vehicles.
The issue arose out of a report by Infrastructure Partnerships Australia – regarded by some as a ‘think tank’, by others as a lobby group.
The case presented by the report is well rehearsed by bureaucrats: the fuel excise component of road charge revenues, collected by the Commonwealth, will decline as electric cars become relatively popular.
For years the bureaucracy presented an imminent decline in excise as the ‘burning platform’ which justifies ‘reform’ – introduction of direct road use charges. Governments have equally consistently avoided doing so.
The report claims a coming acceleration in electric car use makes today the right time to introduce direct charges – for these vehicles. It is a political calculus – based on a belief introduction of charges will be too hard when many such cars are on the road.
The report argues fairness dictates electric cars and fuelled cars should pay equivalent road charges. They both pay registration etc. fees, but electric cars do not pay fuel excise.
The report suggests direct charges for electric cars should be distance based. Odometer readings could be used, or perhaps electric cars drivers could pre-purchase road-use rights in ‘000 km lots. It says while distance-based charges are not ideal, they would be better than nothing and don’t jeopardise better systems – of location charges. Nor do they prevent – or undermine – desirable congestion pricing.
The report argues there are different ways to approach such ‘reform’, not all of which need involve the Commonwealth. Uniquely in the infrastructure debate, it acknowledges an Australian Constitution which limits what the Commonwealth – and States – can do. For example, the Commonwealth cannot charge for use of State roads, and Commonwealth taxes etc. must be uniform across Australia.
Nonetheless, national principles are seen as essential. Otherwise, it warns, Australia risks ‘Rail Gauge 2.0’ – a rerun of the 19th century starting of incompatible railways.
The proposal almost makes sense. But for three matters.
First, in principle, charges for electric vehicles should be less than those for fuel burning cars because of emissions. Electric vehicles have lower ‘tailpipe’ emissions. However, partly offsetting this will be emissions from production of the power used by some electric vehicles – at least for a time.
Second, the ‘reform’ assumption is: road charges should fund road spending. Yet the report ignored the corollary: the fuel excise should only fund Commonwealth spending. If its revenue drops, its spending should drop.
Third, most importantly, at present there is no link between (indirect) road related charges /revenues and road spending.
While some roads should receive general taxation funding – especially lightly used roads needed for access to rural and suburban properties – the present enormous subsidisation of all roads is grossly inappropriate. Reader of Pearls will recall road spending vastly outstripping road related revenues – the latest annual figures show a gap around $12bn. Charge revenue would need to rise by 67% to fund the road spending praised by the infrastructure club!
Road costs and road charges should be better linked. That would be a reform worth pursuing. However, the key issues in this are overlooked in the debate.
One overlooked matter is the need to calculate charges on the basis of costs rather than spending. As for other monopolies, charge revenue should be regulated to efficient costs. Doing so is essential for road reform to make roads better serve the community. Not doing so would line the pockets – and increase the power – of the already powerful infrastructure club.
Another overlooked matter is ensuring community confidence in the process. Calculation of road charges needs to be transparent and done in public. It should be done by a process similar to that used by the NSW Independent Pricing and Regulatory Tribunal in determining maximum public transport fares. Governments could charge less than the regulator determines – but they must not charge more.
Such a scheme is a far cry from ‘regulatory reform’ proposals put forward in recent years. These proposed a ‘regulator’ to rubber stamp whatever amount the bureaucracy wants to spend and force resultant charges on hapless motorists.
Different charge components are also ignored in ‘reform’ proposals. One component – perhaps a large part – of the charge should reflect road wear and a proportion of the fixed financial costs of roads. Those financial costs must be limited to practices needed for an efficient-design road network.
Another part of the charge should reflect costs borne by the community – local emissions, loss of public amenity, some portion of accidents. There are obvious incentive problems in remitting this component to road owners!
Any decent reform would focus on a clean-up of the junk accreted to the current system. This will include removal of double counting such as: calling the GST a road charge; spending on duplicate bureaucracies; motorists paying road charges on top of tolls.
A clean-out would consider whether toll roads should be subject to economic regulation. Again, forgotten by ‘reform’ proponents. The right answer is: ‘yes’.
The final matter overlooked by ‘reform’ proponents concerns how Governments provide funds to road managers. The manner in which they do so has efficiency implications. This is a very different question from charging motorists. And, contrary to bleating from the infrastructure club, funding road management should be relegated to the bottom of the reform list.
The purpose of road reform is to get better use of roads. It is not to do Treasury’s bidding. Nor is it to provide more money and power to an already bloated bureaucracy.
Much more needs to be done than Infrastructure Partnerships says lest Governments perceive this ‘initiative’ as a money grab – just like they have for previous bureaucracy led ‘road reform’ proposals.
As a postscript, Infrastructure Partnerships should refer to a risk of Rail Gauge 3.0, since the infrastructure club has already surreptitiously inflicted Rail Gauge 2.0 on Australia.
John Austen is a happily retired former NSW and Commonwealth official living in Western Sydney.