Transport Reform Network road pricing forum

Speech

PFS001/2015

29 October 2015

Dolton House Hyde Park,
181 Elizabeth Street, Sydney

I am very pleased to join this important forum convened by the Transport Reform Network, on the question of ‘road pricing reform.’

Ten years ago I think it would have been very difficult to get a group of people together to speak about road pricing—other than to dismiss it with the observation that Australians would strongly resist the idea of having to pay for something that many perceive that they get for free.

Today by contrast it seems that there is growing enthusiasm—at least amongst policymakers—for the idea that we could charge for road use in a more consistent, logical and efficient fashion than occurs today.

In my remarks today I want to start by briefly reviewing the increasing public policy discussion of this topic in recent years.

Next I want to touch on some of the reasons why—at least in my view—this possibility is increasingly being raised.

Finally, though, I want to talk about what I see as some of the very real challenges that would need to be overcome before we could go from talk to action.

Increasing Public Policy Discussion

Let me start, then, with the proposition that 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.

For example, in 2010 then Treasurer Swan received the report of a comprehensive study into Australia's future tax system, known as the Henry Review. This contained a recommendation that in time fuel and vehicle registration charges should be abolished, on the basis that they were replaced by “more efficient road user charges.”

Last year the Productivity Commission reported on its study into the funding and financing of public infrastructure, and recommended that “Well-designed user charges should be used to the fullest extent that can be economically justified.” The Commission argued that:

Significant institutional and longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology.

This 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.

Infrastructure Australia commented on the same issue when it released its Infrastructure Audit earlier this year:

Over recent years rates of public and private investment in infrastructure have been higher than the long term average.The current level of funding is unsustainable in the face of increasing budget pressure. Current arrangements represent the most significant opportunity for public policy reform in Australia's infrastructure sectors. The country needs to consider a broader system of transport pricing for both road and public transport.

It is not just government reviews which have called for an exploration of road pricing. Last year a number of motoring clubs joined with advocacy group Infrastructure Partnerships Australia to issue a paper entitled Road Pricing and Transport Infrastructure Funding: Reform Pathways for Australia. The paper recommends

the development of a scrutable, transparent and public process, led by the Productivity Commission, to allow the options, challenges and opportunities posed by road user taxation to be explored, resolved and progressed towards a more efficient and transparent road pricing system.

As well as voices from within the Federal government and industry, we have also seen state government advocacy. For example South Australian Premier Jay Wetherill recently 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.

Some Reasons why this possibility is being raised

It seems, then, that an increasing number of voices are being raised in support of a policy approach of charging road users—either all vehicles or heavy vehicles—based on the use they make of our roads. What are some of the factors that are behind this?

Growing Trend in Other Countries

One obvious factor is that this is an approach which is starting to be used in a number of other countries. Let me mention a few examples—I believe that today's panel session will explore some of these in more detail.

First, a number of large cities such as London, Stockholm and Singapore, have introduced special charges for vehicles entering a designated part of the central city. This is designed to manage the total volume of vehicles on the road in peak periods, and to encourage greater public transport use.

Another trend is the application of specific charges to particular lanes on existing roads or freeways, typically known as High Occupancy Toll lanes, or ‘HOT’ lanes. In the US, there are currently HOT lanes operating in around a dozen states.

In some cases, such as in Virginia, tolls are varied in real time to maintain an average speed service outcome. In this case, drivers that are willing to pay more in peak times get a guaranteed service outcome.

A third, more comprehensive approach to road pricing is being introduced in the US state of Oregon. The Department of Transport there has commenced trials of a new charging system (Orego) which replaces the state's fuel tax with a mileage-based charge as a source of funding for main roads.

Another example is seen across the ditch. In New Zealand the cost of building and maintaining roads is recovered from road users via a combination of flat-rate registration charges, fuel excise duties levied on petrol vehicles, and distance-based road user charges levied on diesel vehicles.

An extension of the concept of toll roads

Arguably, the concept of road pricing can be seen as an extension of the principle, which is now increasingly well accepted in Australia, that major new and existing motorway projects are funded through the imposition of tolls.

In fact there is nothing new about the toll road concept: it dates back millennia as a means of imposing taxes on travelers but also to finance road construction and maintenance.

In Australia it remains a relatively recent development—but in a short time the number of toll roads has expanded significantly.

Toll roads are used extensively in the eastern states, predominantly on urban motorways in Sydney, Melbourne, and Brisbane. For example, CityLink in Melbourne that joins three of Melbourne's major motorways; the Gateway Motorway in Brisbane and the Eastern Distributor in Sydney.

These networks continue to be expanded with early works having recently commenced on WestConnex and NorthConnex in NSW, and Victoria is currently reviewing the Western Distributor proposal from Transurban.

The most obvious benefit of toll roads is that they generate a revenue stream which can be used to pay off the cost of building the road. But another benefit has been that, where a toll road is operated by a private operator, the state can make a formal agreement with the operator covering such matters as the level of service to be provided to motorists; maintenance of the road; and on future upgrades and enhancements.

Improvements in Technology

Another factor which underpins the increasing policy discussion of road pricing is the fact that developments in technology offer new, efficient, low cost means of imposing a user charge. In the jargon of economists, this new technology reduces the transactions cost of imposing a toll.

Forty years ago, charging a toll required putting toll booths on the road, staffed by human beings, and vehicles slowing to a stop to pay the toll.

Today, modern tolling systems such as those used on the M7 in Sydney or Citylink in Melbourne are completely electronic. There is no need to employ people to work in toll booths or to handle cash; and vehicles do not have to slow or stop to pay the toll. But there are still significant capital costs in establishing such a system—for example, in building the toll gantries which span across the motorway at regular points.

Of course, the latest approach is even more cost effective—using electronic devices in the vehicle, which connect to the GPS network or the mobile network to capture the distances the vehicle has travelled. In many cases transport companies already use such telematics devices in their vehicles for their own fleet management purposes.

A key point about the more modern tolling systems is that they link the charge to the distance which the vehicle travels along a road or network of roads. This is a considerably more sophisticated pricing structure than the flat 20 cents we traditionally paid to use the Harbour Bridge!

I mentioned previously the NZ road user charge scheme which offers users the choice between low tech odometer reading and high tech e-RUC options.

Similarly, the Oregon road pricing trial offers users a choice between low tech odometer reading charging options and higher tech charging solutions via on-board diagnostic technology.

In Australia, the Intelligent Access Program (IAP), a satellite-based heavy vehicle telematics application, and on-board mass (OBM) monitoring are already used to undertake in-vehicle compliance monitoring of heavy vehicles, in exchange for allowing heavy vehicles greater access to the road network.

This open technology platform has been designed with a range of potential commercial and regulatory compliance applications in mind including, potentially, GPS-based road user charging.

Attitude of Trucking Industry

Another important factor has been the readiness of the heavy vehicle industry to support new toll roads where it can be demonstrated that the road will deliver time and cost savings to trucks which exceed the cost of the toll the truck is charged to use the road.

For example, the Australian Trucking Association expressed its support for NorthConnex, the toll road being built as a tunnel under Pennant Hills Road in Sydney to connect the M1 in Wahroonga with the M2 in Pennant Hills.

Since COAG agreed in 2008 to a phased reform agenda for heavy vehicle investment and charging arrangements, the heavy vehicle industry has been actively engaged with governments in discussions around reform.

The heavy vehicle industry has signalled its acceptance of the proposition that reform of road planning and investment arrangements is needed to ensure the right infrastructure is built that best meets the industry's needs—something that ultimately benefits us all in lower transport costs and more competitive exports.

For example, in a paper the Australian Trucking Association commissioned from PWC in 2013, entitled “A future strategy for road supply and charging in Australia”, PWC noted:

A more transparent and efficient model for investment in roads and charging for their use is overdue.

Of course acceptance of the principle is one thing; agreement on the details is another. There is a lot of work to do, between government and the heavy vehicle industry, in determining exactly how such an approach would work, particularly the method of charging users.

Challenges that need to be overcome

That is a good point at which to turn to the question of the considerable challenges which would need to be overcome before we could, as a nation, use a road pricing approach more broadly.

Better understanding of how it would affect behaviour

The first challenge is simply to gain a better understanding of how road users—in both heavy vehicles and cars—would change their road use behaviour, if at all, in the face of a move to distance based pricing. There are a number of trials under way which promise to offer useful information about this.

One is the South Australian Heavy Vehicle Trial. The South Australian and Australian Governments are working with industry to explore opportunities for heavy vehicle investment and charging trials in South Australia. A joint government working group is being established to deliver a trial involving the Northern Connector.

The trial will go some way towards collecting the necessary data to consider how existing truck revenue can be collected more fairly and invested more efficiently in our transport network.

It will use technology installed in heavy vehicles to capture data about the vehicle and its movements—with a view to more efficiently being able to charge freight users for use of the roads than is presently possible.

Another trial is being conducted by motorway company Transurban in Melbourne. The Transurban Road Usage Study involves a significant number of volunteer road users and covers the Melbourne metro road network. The trial will provide valuable insights into how road users change their behaviour under three charging scenarios; a per kilometre charge; a one-off charge based on anticipated travel; and a per trip or access charge.

Demonstrate that benefits exceeds cost

The next challenge that would need to be overcome is to demonstrate to Australians that the benefits from a broader use of road pricing would exceed the costs.

There is still a lot of work to do on understanding what impacts road pricing would have on all users of the road system, and the broader economy. In addition, no government is likely to proceed down this path unless it is confident that there is a reasonable degree of community acceptance and understanding.

Equity

A specific issue that government would need to be satisfied about would be the equity implications of the greater use of road pricing. Would some people be worse off? If so, who would they be? Could they be compensated? Again, we do not yet know the answers to all of these questions—but we would certainly need to before this approach could be adopted widely.

In considering these issues, the Australian Government would want to give careful thought to community service obligations, service level standards and how best to structure charges across road networks.

Agreement between all relevant levels of government

Another key point in relation to the broader adoption of road pricing is that it would require agreement between the Federal government and state governments. In turn, that will require joint policy work.

The Turnbull Government is working with the Western Australian Government in relation to the proposed Perth Freight Link, which will deliver cost savings for the freight industry through time savings and reduced vehicle operating costs.

The project would represent the first time a heavy vehicle charge would be applied on a specific route in Western Australia to build a road and the first time GPS-based technology would be adopted for charging purposes.

Similarly, as I have mentioned, we are working with the South Australian Government in relation to a road user pricing trial linked to the Northern Connector.

Conclusion

Let me conclude then, with the observation that there is little that is new under the sun—as is evident from the fact that road tolls have been around for hundreds of years. That being said, there is a growing chorus of voices calling for a closer linkage between the costs incurred in supplying roads, and payments from those who use roads.

However, there are many complex issues that require closer examination if road user charging is to be rolled out on a wide scale. There is much work to be done on understanding what impacts reform would have on all users of the road system and how those impacts should be appropriately managed. We are keen to look further at road pricing measures as a long-term reform, and we want to explore different policy options and model different scenarios.

We will work with key stakeholders—in government, industry and the community—to identify reform options that deliver productivity gains but which are also fair and equitable to the Australian community.

The Government understands the need to paint a picture of what change in road pricing reform will look like, and being very clear about how reform will be achieved. Events like this are a key part of building this understanding about road pricing reform, and thus building a persuasive case for change.

I thank everyone here for your interest in the topic—and I commend you for stimulating this very important debate.