Australia: Road pricing reform: Is a User Pays model the future?

Australian governments are being asked to rethink how they fund road infrastructure. Calls for a "user pays" road pricing model are getting louder but there are still significant hurdles to make it happen. Here we identify legal reforms that will be needed to transform road pricing in Australia.

THE NEED FOR REFORM

Road pricing reform made headline news again last week when it dominated the first day of the Australian Financial Review's 2015 National Infrastructure Summit.

The case for a 'user pays' model has already been previously made by peak government and private sector bodies – Infrastructure Australia, the Productivity Commission, the OECD, the Harper Competition Policy Review, the Ken Henry Tax Review, the Business Council of Australia and Infrastructure Partnerships Australia, among others.

The case is compelling:

• Congestion levels are at record highs – those in Melbourne and Sydney are at similar levels to those in New York and London. The gridlock will get worse as Australia's major cities are forecast to double in population by 2050. Infrastructure Australia's recent Audit found that road congestion will cost the economy $53 billion by 2031.
• The current road funding model does not generate nearly enough revenue. In 2013, there was a $6.5 billion shortfall between spending and amounts raised by road-related taxes.
• Revenue raised from motorists, including fuel excise, licence and registration fees, is unsustainable, inequitable and does not match road usage.

It may be a challenge for road pricing to pass the "pub test", but Australia urgently needs radical reform. What would that involve?

1. CHANGES TO THE LEGAL FRAMEWORK

NSW and Queensland already have legislation which allows authorities to declare a tollway and levy tolls, while Victoria does not. But whatever the starting point, legislative changes will be needed to support reform and to address a range of new issues.

Facilitating powers: Government will need to give itself the powers to impose a road pricing scheme. Also, in order to competitively source the operation of the scheme from the private sector, Government will need the power to let a private entity collect the charges on its behalf.

Application to existing roads: currently, tolls are only applied to new freeways. A general road pricing scheme such as a comprehensive model will need to cover at least existing major roads.

Setting the level of the charges: who will have the power to set the charges and how will they change over time? This may need regulatory oversight from the ACCC or the equivalent state-based pricing regulators, such as NSW's IPART and Victoria's ESC.

Dynamic pricing: if a road pricing scheme uses dynamic pricing (where prices increase as congestion increases), for maximum impact on driver behaviour, drivers will need to be provided with real time charging information.

The legal form of the charge: for example, whether the charge will be a municipal/ state/ federal tax, a congestion or environmental levy, or some other form of charge. This will depend on the road pricing model used and whether it is coordinated between Federal and State governments or not.

Proceeds from the scheme: safeguards should be enshrined in legislation to ensure that all money raised from the scheme is reinvested in improving transport outcomes. This will necessarily involve spending on public transport as well as roads.

Technology: the technology used for one system must be compatible with the technology used for other systems throughout the country. It will need to be easy to use, reliable and inexpensive for motorists.

Protection of privacy: privacy concerns are paramount. The technology used in a road pricing scheme could involve compulsory monitoring of motorists by car tracking devices or satellites. Strong legislative protection will be needed to restrict the use of data.

Apart from the scheme itself, the police may want access to the data to assist their investigations of major crime. But what about monitoring speeding or other traffic offences?

And what if the data were made available to commercial interests, for example targeted advertising based on motorists' travel habits? The legislation would need to guard against unfavourable use of the data. One approach may be to make the technology (such as an in-car GPS) voluntary, where the benefits of flexible or lower charges are only available to those motorists who 'opt-in' and accept those conditions.

The enforcement process: every revenue raising scheme potentially has a dark side – the need for enforcement in road pricing is no different. The road charging technology will need to provide data as evidence to support prosecutions against motorists evading road charges.

2. BALANCING THE INTERESTS OF EXISTING TOLL PROJECTS

Existing tollway operators will be impacted by new road pricing models if their roads fall within the catchment areas. They will have opportunities to claim compensation unless a careful approach is taken to the implementation of any new scheme. It must respect the private sector's investment but at the same time not deliver a windfall at the expense of tax payers.

Governments will also need to ensure that any new contracts to build future roads which may be affected by the road pricing scheme appropriately allocate the rights and responsibilities for imposing and collecting charges from motorists.

3. REFORM COORDINATION

There is a mismatch between the levels of government which raise the revenue for roads and the levels of government responsible for the construction and maintenance of our roads.

The collection and allocation of revenue for roads is a complex matrix which could be more transparent: the end result is a potential inequitable allocation of federal funding between the States and Territories.

Without coordination on road pricing reform between all levels of government, some users could end up paying higher overall charges than others (with the difference not reflecting their different use of the network).

Ultimately, coordinated and clear minded structural road pricing reform is an opportunity for governments to realign the system, boost productivity, better manage our cities' congestion problems and generate the funding we need to build and maintain a better road network.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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