Motoring policy
For whom the tolls benefit – not the public interest
For a city of 5 million, with a complex geography and the legacy of road networks that started to be laid down 236 years ago, Sydney has an excellent road system. It has a ring of high-quality freeways (“motorways” in the quaint language of the state government), allowing for a smooth traffic flow most of the day and avoiding the environmental costs of stop-start traffic. Even better, in the more densely settled areas, the roads are underground, meaning that the surface-level roads they replace can become places of living, of commerce, and of mixed-mode slow-moving traffic.
But as a consequence of short-sighted public policy, driven by fiscal cosmetics and an ideological commitment to privatization, it doesn’t work like that. That’s because most of the high-quality roads are tollways, owned by private companies.
At almost any time of the day, particularly outside peak hours, the toll roads are under-used, while the streets above remain as congested and unfriendly as ever. In order to avoid tolls, truck drivers rat-run through streets that have had to be converted to clearways, belching out particulate pollution, using noisy engine brakes, and rendering these streets as dead corridors of closed businesses.
Even worse, the tolls tend to fall on those who have furthest to drive and for whom public transport is either unavailable or unsuitable (the anti-road lobby has never acknowledged that many people travel at odd hours and with their tools of trade). Those with well-paid jobs in the CBD, and those who live close to atrain station or ferry terminal, can live comfortable lives hardly aware of the existence of toll roads.
In April last year, shortly after taking office, the New South Wales government, fulfilling an election promise to end the Liberals “toll mania” in the world’s “most tolled” city, promised to reform the tolling system. The review, conducted by Allan Fels and David Cousins, two of Australia’s most knowledgeable people about competition and regulation, handed their interim report to the government last week.
They report on the haphazard way certain roads have been built as toll roads:
Tolls have been developed for each of the thirteen toll roads separately without regard to any overall system linking them.
There is no unified system of tolling.
They confirm the impression that there has been a serious misallocation of resources:
Overall, the toll roads, even at their busiest time in the morning peak hour in 2022, were found to move relatively freely with limited delays and only a few persistent congestion hot spots. However, the untolled roads were more crowded and congested on average throughout the day. This may, partly at least, reflect the aversion a significant proportion of motorists have to paying tolls and the perception held by the great majority of users that tolls are set too high. Rather than use the toll roads, motorists are continuing to utilise the more congested untolled roads.
That, in economists’ terms, is deadweight loss. A high-quality piece of infrastructure lies under-used, while a more costly piece of infrastructure lies under-utilized, because of pricing that discourages efficient allocation of resources.
Underneath this rat run there’s an empty toll road.
Unfortunately because previous state governments have awarded the toll road operators long-term contracts, up to 30 or 40 years, with generous escalation clauses, the terms of reference were somewhat constrained, meaning that the changes Fels and Cousins recommend involve maintaining the existing mix of tolled and untolled roads.
Within those constraints, their recommendations make sound economic sense, in terms of both equity and efficiency. There should be more use of time-of-day variation in tolls, less use of fixed per-kilometer charges (which discriminate against those with long drives), and one regulatory body responsible for all toll-setting. You can hear Fels outlining the report’s recommendations on the ABC (13 minutes).
What Fels and Cousins don’t consider, however, is the possibility of eliminating tolls altogether, presumably because it’s beyond their terms of reference. They estimate that tolls are costing Sydney road users $2.5 billion a year, not including the costs of pollution and congestion resulting from rat-running. Could that money be found in some other way?
To provide a back-of-the-envelope calculation, it could be raised with a modest levy on fuel. Sydney people are already paying about $5 billion a year in gasoline and diesel fuel excise, levied at a rate of 50 cents per liter.[1] A levy of 25 cents a liter, collected in the Sydney region, would be adequate to replace the toll revenue, bringing the GST-paid price of low-octane gasoline up to about $2.20 - $2.30 a liter – a price still well below the level in most other “developed” countries.
A related option that would go along with replacing the funds collected by tolls would be for the New South Wales government to confiscate the 11 toll roads in private hands (it already owns 2 of them), and pay the owners a depreciated book value of the roads, rather than the present value of future unjustified profits – which would be treated as the proceeds of crime.
That would shake up the financial markets, in a way reminiscent of Jacks Lang’s interventions in 1932, which were also about financing infrastructure. It may send a warning to financial markets that governments see no obligation to honour crony deals giving private corporations license to plunder the state’s wealth into the future.
As a sign that the recommendations are gentle on the industry, Transurban’s share price dropped only 3.2 percent between Monday and Thursday, only slightly more than the 2.4 percent drop in the ASX.
That’s for now. Within a few years, as internal-combustion vehicles give way to electric vehicles, governments will have to work out an allocatively efficient and fair system of road user charging. The possibilities and variants are vast – for example a penalty for rat-running, fees that charge road users for taking exits into congested streets. If the present toll roads could simply be made part of a wider user charging system, Sydney and the other cities using tolls – Melbourne and Brisbane – may be able to enjoy the full benefits of these so-far poorly used pieces of infrastructure, and return suburban streets to the community.
At present, Adelaide and Perth are free of the toll road curse, but there are voices in these cities, some from toll road companies and some from those who don’t understand basic economics, calling for tolling. Those with such views would do well to look around Sydney to see what a terrible misallocation has resulted from privatization, while a little more tax revenue would have delivered a fairer and far more efficient outcome.
1. The actual excise is 49.6 cents. Excise collects $23 billion a year. Sydney has 21 percent of Australia’s population, which means residents of that state pay about $4.8 million in fuel excise. ↩
Why tradies like electric vehicles
The Coalition surely felt that it could capture tradies’ hearts and minds with its scare campaign about fuel efficiency standards. In a campaign reminiscent of the $100 roast, the Party announced, without disclosing sources, that “the cost of some popular models such as the Toyota Landcruiser could rise as much as $25 000”, and that the prices of other popular vehicles could rise by up to $18 000. (Hint for the Coalition: when you run a scare campaign keep your exaggerations within credible bounds.)
They didn’t want reality to get in the way of a good scare campaign. Such as the fact that John Howard took fuel efficiency standards to the 2001 election – but didn’t implement it – and that Liberal ministers Josh Frydenberg and Paul Fletcher tried again in 2018 but were rolled by the party’s far right, as Chris Bowen reminds us in his speech to the 2024 Smart Energy Conference. Or that Australia is the only major developed country, apart from Russia, that doesn’t have standards. Perhaps to Dutton lining up with Putin may be something to be proud of rather than an embarrassment.
Then the scare campaign started to fall apart. Tesla announced that it was severing ties with the Federal Chamber of Automotive Industries, who had been the only strong industry voice against the standards. To quote Sydney Morning Herald journalists Nick Toscano and Mike Foley from their article Tesla quits car industry group over ‘false’ Australian pollution caps claims:
In a letter to the Federal Chamber of Automotive Industries (FCAI) on Thursday, Tesla raised serious concerns about what it said were “false and misleading” public comments that suggested the long-anticipated introduction of a proposed fuel efficiency standard would significantly drive up the price of cars for Australian consumers.
Last Friday the Australian representatives of China’s Polestar announced that it was joining with Tesla to disassociate itself from the FCAI campaign. In an interview on ABC Breakfast Polestar’s Laurissa Mirabelli countered the Opposition’s and the FCAI’s campaigns with some basic facts about likely price movements (they’re tiny). She also suggested that other companies, not necessarily EV importers, also strongly disagree with the FCAI.
Motoring consumer groups such as the RACQ have announced their support for fuel efficiency standards, noting that they “will ultimately make motoring more affordable”.
Then on Monday the ABC’s Jo Lauder published data showing that EVs, which now account for 7 percent of passenger vehicle sales, are taking off in the outer suburbs. Her web article provides maps for capital cities, confirming that sales tend to be concentrated in suburbs a long way from the CBD, rather than in the regions close to CBD’s where the “woke” and “climate radicals” live, to use the Coalition’s terms. There is a similar article on the Switched on website: Electric car dreams are becoming an outer suburban, mainstream reality.[2]
The point missed in the Coalition’s scare campaign is that the standards are about fuel efficiency. That is they will result in less fuel being used, be the chosen vehicle electric, hybrid or internal-combustion, and the saving will be proportional to the distance travelled. Some of those savings are outlined in the government’s FAQ post about the standards, but the point is that they are substantial. Of course they are attractive to people living in outer suburbs who drive long distances, particularly tradespeople who drive much further than commuters. Also, in contrast with many inner-city dwellers, they have suburban blocks and free-standing houses and sheds on which they can mount photovoltaic panels, while inner-city dwellers living in apartments face difficulties in installing charging points, and panels are often out of the question.
The Opposition’s scare mongering was not only based on false assumptions; it was also condescending to tradespeople and others who live in outer suburbs, implying that they are too ignorant to assess the benefit in enjoying lower vehicle running costs in exchange for a small immediate price premium. Calculating the present value of future benefits is standard business practice, and should be common knowledge to most tradespeople. But it’s possible that such calculations are beyond the abilities of Coalition politicians, who consistently demonstrate their ignorance when it comes to financial and economic issues.
2. The writers claim to be using data from a body known as the Electric Vehicle Council, but they provide no link to that source. There is a body known as the Electric Vehicle Council, but its website does not include the data to which the writers refer, and doesn’t seem to have been updated since October last year. There is only a recorded message on its phone line, and it has not responded to an e-mail asking for confirmation of its data. Similar regional data however, confirming the data used by Jo Lauder and Switched on, is available on the Australian Automobile Association’s Electric Vehicle Index, in a form that’s more difficult to visualize but which aligns with the data supposedly supplied by the Electric Vehicle Council. ↩