UNSCRAMBLING THE TOLL ROAD EGG HOW TOLL ROADS

UNSCRAMBLING THE TOLL ROAD EGG HOW TOLL ROADS LOCKED IRRATIONAL PRICING AND OPTIONS FOR A MORE EFFECTIVE APPROACH

JOHN QUIGGIN AUSTRALIAN LAUREATE FELLOW, UNIVERSITY OF QUEENSLAND

ROADS: ONE OF OUR BIGGEST CAPITAL ASSETS • Value of Australian road network estimated at $280 billion (Roads Australia) • Annual expenditure around $50 billion (Commonwealth and state budgets) • 250 billion vehicle/km travelled

HAPHAZARD MIX OF FUNDING AND PRICING • Vehicle registration charges, unrelated to road use • Fuel taxes, a mixture of resource rent tax, general consumption tax, road user charge • Local government rates • State and Commonwealth general revenue

TOLL ROADS AND PPPS • Ad hoc deals to deliver new projects without addition to measured public debate • BOOT (Build, Own, Operate, Transfer) model • Crucial role of demand risk

THE END OF THE PPP MODEL • GFC • Failures due to over-optimistic demand forecasts • Last attempt (Legacy Way) failed to attract sufficient interest • Return to public finance • Is the model permanently broken? • Asset recycling

OBJECTIVES FOR ROAD PRICING • Cover costs, including return to capital, depreciation and maintenance • Price of use should cover marginal costs, including congestion • Need to optimise network as a whole, not individual roads • Correct balance between private cars and public

PRINCIPLES FOR ROAD PRICING • Two part tariff: fixed registration charge and usage-based charge • Network optimisation requires congestion pricing • Supplemented by speed limits and physical controls on unpriced local roads

CURRENT POLICY HAS IT BACKWARDS • • Old congested roads are untolled New toll roads massively underused (around 50 per cent of projected usage in Brisbane) • BOOT arrangements mean that, by the time roads are congested, tolls will be due for removal

UNSCRAMBLING THE EGG • Comprehensive road pricing based on congestion • Buyback or shadow tolling for underused toll roads • Focus on better use of existing road network rather than construction of new roads

TECHNOLOGY • GNSS road pricing • Singapore model • Privacy issues: need to be addressed systematically given ubiquity of cameras • Implications of self-driving cars ?

FISCAL FEASIBILITY • Revenue neutrality: user charge revenue can be used to reduce registration charges • Government debt: this is ‘good debt’, • Government bond rates at historic lows

POLITICAL FEASIBILITY • The big question • Long standing assumptions about political feasibility are no longer valid’ • Labor has advocated raising taxes, still leads in opinion polls • Donald Trump is President of the US • If not now, when?