The slow road from rhetoric to reform: an analysis of road pricing policy in Australia

Economic Papers (Economic Society of Australia), March, 2004 by Richard Denniss, Clive Hamilton

The financial subsidy to road transport is estimated to be up to $20 billion per annum, excluding the cost of greenhouse gas emissions. The current system of vehicle and travel charges is inefficient and leaves major externalities unpriced, leading to a general overconsumption of travel. Further, alternate transport modes do not receive equal treatment, with rail-based transport covering a larger proportion of its total costs, compared to road-based transport. Consequently, all evidence suggests that there is overconsumption of road transport.

Recent changes to the tax system in Australia have exacerbated inequities in transport pricing, while existing tax regimes, such as that for fringe benefits, include direct incentives for additional car travel.

In the last 20 years there has been much discussion of the need to use economic policy instruments to improve the sustainability of the transport system. Over the same period, policies which represent a significant step backwards, such as the abolition of fuel excise indexation, the imposition of a 10 per cent tax on public transport and lowering the cost of fuel for business users have been implemented. The question for policy makers is not 'what should be done?' but 'why hasn't it been done?'

TABLE 1

ESTIMATES OF THE TOTAL EXTERNAL COSTS OF ROAD TRANSPORT

Country    Share of mode in total external costs   Total as %
                                                      GDP

           Cars    Buses    M/cycles    Freight
Europe     .65      .04       .08         .23         4.2
France     .56      .03       .04         .37         4.2
Greece     .53      .10       .06         .31         5.6
Norway     .70      .04       .09         .17         2.7
UK         .69      .04       .04         .23         4.7
USA                                                  12.3 (a)

(a.) This figure is much higher because more externalities were taken
into account.

Source: Adapted from European Environment Agency 1996, Table 2.

TABLE 2

PERVERSE TRANSPORT POLICY DECISIONS

Provision        Explanation

Parking space    Free (or reduced cost) parking space provided by emp-
                 loyers is often not included in taxable income
                 (benefit in kind). Similarly, parking is provided free
                 of charge by governments during uncongested periods
                 (suggesting that congestion is the only cost
                 associated with road use).

Company cars     The use of company cars for private use is taxed con-
                 cessionaly in Australia, despite the recommendation of
                 the Ralph review of business taxation. The current
                 cost of tax concessions to company cars is estimated to
                 be $940 million in 2002-2003 (Treasury, 2002).

Petrol Prices    With the implementation of the GST promises were made
                 that petrol prices would not increase while a l0% GST
                 was imposed on public transport.
                 For business users, the price of petrol fell by 9.1%
                 Indexation of fuel excise abolished in 2001.

Car prices       The 22% wholesale sales tax on cars was replaced with
                 a 10% GST on the purchase price.
                 Imported 4WD vehicles face 5% import duty while
                 imported passenger vehicles incur 15% import duty

TABLE 3

FRINGE BENEFITS TAX ON VEHICLES

Distance               Statutory    Taxable value    Grossed-up
                         rate        on $30,000        value
                                       vehicle

Up to 15,000 km           26%          $7,800         $15,146
15,000 km to 24,999       20%          $6,000         $11,650
km
25,000 km to 40,000       11%          $3,300          $6,408
km
Above 40,000 km            7%          $2,100          $4,078

                          FBT
                        payable

Up to 15,000 km         $7,345
15,000 km to 24,999     $5,650
km
25,000 km to 40,000     $3,108
km
Above 40,000 km         $1,978

Source: ATO (2000).