Road Pricing

Road users are facing a future of growing traffic bottlenecks and our urban communities are incurring very high costs of congestion.  Building our way out of congestion has long been acknowledged as a futile exercise.  And today, and into the future, the land for new roads is scarce forcing the development of very expensive options such as tunnelling.  Simply put, there are, at times, too many users of the roads and ways of rationing access to the road network must come into play.  The current road pricing system is deficient, as it is based on private (not social) costs and has no long-run pricing signal.

Currently, road use is not priced to reflect the cost imposed by a user of the road network.  Fuel excises are used as a default pricing system, however they lack the precision and elegance of a well-designed pricing system.  Though the two main objectives of road pricing are cost recovery and the regulation of demand for road traffic, road pricing affects many other economic decisions.   Some impacts which directly affect road users, the road manager and the rest of society can be easily determined, whilst others only emerge in the long-term as a result of a complicated chain of causes and impacts.

The Harper Review noted that a lack of proper road pricing results in poor investment decisions and distorts choices among transport modes: for example, between roads and rail relative to freight, and between roads and public transport relative to passenger transport.  The Australia’s Future Tax System Review (informally known as the Henry Tax Review) recommended that “On routes where road freight is in direct competition with rail that is required to recover its capital costs, heavy vehicles should face an additional charge on a comparable basis, where this improves the efficient allocation of freight between transport modes.”

The socio-economic impacts of heavy-vehicle road pricing are extensive and diverse, potentially affecting travel behaviour, freight patterns, consumption, production by companies, location choices, employment, and, ultimately, gross national product (GNP).

The key issue is whether communities can adapt and whether the benefits of road reform will exceed the costs.  We can be sure that communities will adapt to a change in how road use is priced, as communities adjust to price changes every day.  For example, a change in heavy-vehicle charging would increase freight costs which almost certainly would be reflected in the price of goods.  Higher prices will cause households to change their purchasing decisions to adjust for the impact on their budget.

Lack of road pricing also contributes to urban congestion – a growing problem in Australia’s capital cities.  The Bureau of Transport and Regional Economics has estimated that the social cost of urban congestion will exceed $20 billion per annum by 2020.  Congestion costs are incurred widely and include additional travel time, fuel consumption and emissions, and reduced efficiency of public transport and desirability of public congested areas.  However, road users do not consider their impact on others which results in greater costs being imposed by all users.

In congested areas, the key aim of road pricing is to decrease traffic volume.  Ideally, road pricing should vary according to the level of traffic, type and condition of a vehicle, weather conditions, and location in order to reflect the costs imposed by the road user (i.e. incorporating all external costs to ensure an individual can meet all the costs involved in a road trip).  There is, however, a trade-off between the complexity of the pricing signal and the response by users.

Reluctance from the community may be evident, as road pricing creates an on-going issue for the Government.  Not only is road pricing complex, but it will also trigger other complex issues.  The real impacts of road pricing will depend on where people live, where they work, the modal share and the income distribution in society.  Location choices for housing, firms and services are impacted by the complicated impact chain of vehicle and fuel taxes and charges, and consequently the costs of travel and freight.  If the cost of travel and freight is high, people respond by seeking jobs and services closer to home (or homes closer to jobs and services), and firms seek locations closer to partners and customers.  Although the benefits of pricing reform will exceed the costs, the examples above point to the major obstacle: there will be clear winners and clear losers.

Whilst road pricing will deliver better economic and social outcomes, road users typically oppose reform as they feel it to be an additional cost on top of taxes already being paid and believe existing roads should not be subject to road pricing on the basis that they ‘have already been paid for’.  However, these charges do not necessarily create adverse barriers if they support successful development of viable communities (e.g. congestion relief, reduction of environmental damage and funding of the transport system).   Existing taxes can be reduced and revenue from new road pricing can be allocated to fund the transport system (e.g. maintenance, investments and the supply of public transport).

Despite an increase in the number of toll roads in Australia over the last few decades, this has not shifted public opinion in favour of road pricing.  The pricing mechanism of toll roads pales in comparison to the outcomes that can be achieved with road pricing.  Tolling largely aims to recover costs, rather than using pricing to manage traffic flows.  Whilst they may be useful as part of a congestion management package, toll roads are not suitable as a primary policy tool for managing road use.  The implementation of road pricing could stop the cycle of building toll roads to mitigate congestion, whilst reflecting (amongst other factors) the social cost of road use, time of day and location.

Calls for road pricing reform (including cost-reflective heavy-vehicle charges and the introduction of urban congestion charging) have been the subject of discussion over recent decades, but to date this has not resulted in any meaningful consideration.

Even with several road pricing reform processes, such as the COAG Road Reform Plan and the Heavy Vehicle Charging and Investment (HVCI) Reform Group, two key barriers have prevented meaningful reform – concerns over cost and technical feasibility and the political implications of community acceptance of higher road charges.  It seems road pricing reform is also stuck in traffic.

If Australian governments are able to implement road pricing, Australia will become a world leader.  Road pricing is a global challenge and while there are few notable examples always referred to (e.g. Singapore and London), there have been no network solutions in place despite advances in the enabling technology.  The country which tackles the problem first becomes the industry leader and develops skill that will be sought worldwide.  Now, that would be a truly innovative outcome for Australia.