AAA backs new approach to road funding

The Australian Automobile Association (AAA) has called on the federal government to drop the fuel excise levy it vowed to resurrect in the May budget.

“We urge the Federal Government to re-think its proposed fuel excise legislation to deliver real reform of road and transport infrastructure funding,” said AAA Chief Executive Andrew McKellar.

“It is unacceptable that the current Budget measure only directly links one cent of the 39 cents per litre that motorists pay in fuel excise back to road funding. Motorists are already paying too much and are not getting a fair return for the taxes they pay.”

The AAA appears to have been goaded into action by a speech from the chairman of the Australian Competition and Consumer Commission (ACCC), Rod Simms. In his speech, Simms declared that roads had not been “subject to the level of micro-economic reform that has occurred in other industries since the 1990s”.

The ACCC chairman continued, noting that “current road charging mechanisms and structural arrangements fail to promote efficient decisions by road users and funding bodies”.

Three main factors were highlighted in the speech:
1.    Road users pay disproportionately for the privilege of driving;
2.    Road providers receive revenue that is in no way linked with the service they provide users; and
3.    Funding for roads is based on needs that frequently better serves political processes, rather than being based on an objective cost/benefits analysis.

Subsequently, Simms noted that congestion pricing for road use – a mechanism that has been adopted in Europe – would provide governments a clearer indication of weak points in the road network during peak hour. Simms uses the analogy of renting a beach house during the summer months. It’s more expensive then, because that's what the market will bear and it’s a reflection of higher demand. The ACCC naturally believes the same market model can be applied to roads.

It’s a view that is shared with the Productivity Commission, which recently concluded its ‘Public Infrastructure’ inquiry, with much the same recommendations. The Commission argues that the fuel excise levy has been lagging behind road building, but that lag is largely compensated – across three tiers of government – by registration fees or council rates, to offer two examples.

While the Productivity Commission's inquiry and Rod Simms’ speech both hint at higher costs to motorists, the inquiry makes something clear that has long been obvious to road users – the petrol excise levy is often plundered by governments for purposes other than the upkeep and building of roads. Hence McKellar’s remark about one cent out of 39. This is central to the recommendations by the Productivity Commission and the ACCC: that revenue for road infrastructure should be sacrosanct and not diverted for other needs.

The Productivity Commission suggests that the increased roll-out of in-car GPS location and telematics in recent years could be a turning point for road funding based on user-pays systems. In effect, road usage may cost more in the future – or it may cost less. But if the Productivity Commission and the ACCC have their way, those paying more will receive benefits commensurate with the extra cost.

Just how such a model can be applied to motorcycles remains to be seen.

In future, possibly, roads carrying more traffic will receive a larger slice of the pie and will be upgraded more often – rather than missing out on funding because the road in question is in a safe Labor/Liberal seat, for instance. If the Productivity Commission’s recommendations are adopted, it could have a far-reaching effect on the hip pockets of drivers – and possibly for the better, as the AAA’s McKellar observed.

“Every motorist in Australia knows the current approach to road funding is broken, with increasing congestion in the cities and unsafe highways in rural areas. Motoring clubs want to see a better return to motorists, not another tax grab.”

So if your car’s satnav system informed a central registry that you travelled less than 10,000km last year – wouldn't you welcome a 50 per cent cut in the cost of registration?

Alternatively – and the GST provides one precedent for being so cynical – the fuel excise levy could remain, registration fees might stay high across the spectrum, and state governments and municipalities would find some way to impose a new congestion tax as well!

But at least the Productivity Commission has foreseen that possibility too, arguing on behalf of “an organisational structure that operates at arm's length from government with a chosen entity (the road fund) responsible for managing the allocation of revenues from the fund”.

Think of it as a road-funding authority as distant from political influence as the Reserve Bank is.