An evaluation of the case for a congestion tax in Australia by Prafula Pearce, CTA, Senior Lecturer, and Dale Pinto, CTA (Life), Professor of Taxation Law, Curtin Law School
Abstract: Traffic congestion has become a growing concern in most cities in Australia. A 2014 report by the Economic Regulation Authority (ERA)1 highlighted the need to implement a congestion charge in Perth. This article examines factors that cause congestion and alternative ways of dealing with congestion in Australia. Specifically, the article examines whether introducing a congestion tax could provide an effective means of resolving traffic congestion in Australian cities. Studies and results from other jurisdictions are examined in order to help inform the policies that Australia should adopt. It is submitted that an inquiry into congestion charges should include a wider investigation, including motor vehicle tax reform, city planning, redirection of revenues and a longer strategic plan. The article also recognises that congestion charging, if implemented, may have other implications for which Australian cities may not be ready.
Introduction part then explores whether introducing a been commissioned and reported where The submission made by the Committee congestion tax could be an answer to that solutions have been explored to deal with 5 for Perth2 to the draft report for the problem, followed by a discussion on wider the congestion problem in Australia. Inquiry into microeconomic reform in congestion management measures in the Before examining the need to solve the Western Australia produced by the ERA fourth part. The fifth part explains the need congestion problem, it is necessary to summarised the concerns pertaining to for comprehensive taxation measures to determine the causes of congestion in introducing a congestion tax in Australian combat congestion within Australian cities, Australian cities. Australian cities have cities. The committee said that although followed by a conclusion pointing to the big evolved over more than 10 decades to transport and congestion are critical issues picture that can take Australia into the next their present form based on a vast number that affect liveability and productivity, 100 years. of factors that include state government a system-wide, region-wide solution is The congestion problem in land and housing policies and the required after a thorough investigation into Australian cities increase in the ownership of passenger the structure of the charge, the capacity motor vehicles as a means of personal The voice of the Australian people in of the public transport system to meet transportation. relation to congestion is being heard increased demand and the availability through many forums. Many Australians A plentiful oil supply and affordable of transport alternatives. In addition, the are taking longer to reach their journey motor vehicles has been the catalyst for revenues received from the congestion destinations, thereby incurring social the growth in passenger motor vehicles charge should be earmarked to improve costs in terms of lost time, health costs over the last 100 years, both globally and public transport and walking and cycling arising through anxiety and the frustration in Australia. The number of passenger infrastructures.3 of being stuck in traffic jams, as well as vehicles registered per 1,000 population This article examines the criteria that incurring costs arising through a loss of increased in Australia from 250 in 1965 should be adopted in undertaking an productivity. A report prepared in 2006 by to 465 in 1995.6 In 2008, there were 555 investigation to resolve the congestion the Department of Transport and Regional passenger vehicles per 1,000 population issue in Australian cities, including the Services for the Council of Australian compared with 719 total motor vehicles cause of congestion and the alternative Governments (COAG) states that the total per 1,000 population.7 In 2008, the number ways in which it has been dealt with in social cost of congestion in 2005 across of registered passenger motor vehicles other cities in the world. It is submitted in the eight state and territory capital cities in was 11,803,536, making up 77% of total this article that the Australian Government Australia was approximately $9.4b, made registered motor vehicles.8 The total motor needs to take a stance and show its up of approximately $3.4b in private time vehicle population in January 2011 was leadership in this policy area by embarking costs, $3.6b in business time costs, $1.2b 16,368,383, of which passenger motor on long-term planning to resolve the root in extra vehicle operating costs and $1.1b vehicle population was 12,474,044,9 cause of congestion, including a reform of in extra air pollution damage costs.4 whereas in January 2012, the total motor the existing taxes pertaining to ownership As a result of these costs and the pain vehicle population was 16,741,644, and use of motor vehicles in Australia. and suffering caused by congestion, the with 12,714,235 being passenger motor 10 The article is divided into six parts. Australian people are demanding that vehicles. Following this introduction, the second the Australian Government takes action to The historical increase in the number of part explains the root of the congestion reduce congestion. This is evident from the registered cars on Australian roads is problem in Australian cities. The third number of inquiries and studies that have shown in Figure 1.
146 THE TAX SPECIALIST | APRIL 2015 A congestion tax alone is unlikely to Figure 1: Registered cars and station wagons resolve a problem that has been created over a century, particularly as the evolution of Australian cities over that period has 14,000,000 resulted in widely sprawled suburbs and centrally concentrated employment 12,000,000 opportunities requiring individuals to travel 10,000,000 great distances to work and other activities and making public transport expensive to 8,000,000 implement effectively. Before examining 6,000,000 the wider solutions to combat congestion, the next part explores possible problems 4,000,000 associated with the introduction of a 2,000,000 congestion tax in Australia.
0 Is a congestion tax the 1920 1950 2003 2008 2011 2012 answer? To answer the question of whether a Registered cars and wagons congestion tax is the answer to resolve the congestion problem in Australian Source: Australian Bureau of Statistics.11 cities, it is necessary to understand what a congestion tax is. A congestion tax is a levy charged to a motorist in order to Not only has the number of passenger right or convenient time; travel time too discourage the use of an existing road vehicles increased, but Australians are also long; own vehicle needed; or need to carry facility in order to reduce congestion at increasingly relying on passenger motor passengers, equipment and tools.15 specific times. It is different from road tolling as road tolls are imposed to raise vehicles as their main means of personal Recent reports indicate a peak in revenues in order to fund the construction transportation. motor vehicle use in most developed of roads or to maintain the roads.19 In 1995, private road vehicles represented countries since the early 2000s partly 12 Thus, by its very definition, a congestion 93% of city passenger transport. due to increased oil prices.16 This trend is tax is meant to reduce the use of specific In March 2009, 92% of Australian consistent with the statistics on kilometres roads individually or within an area by households kept at least one registered travelled by registered motor vehicles in imposing a charge for the use of that road motor vehicle at home. The proportion of Australia: passenger vehicles accounted facility. Supporters of congestion taxes households with two or more registered for 74.6% of total distance travelled in 2006 argue that imposing such a charge would vehicles increased from 51% in 2006 to compared to only 72.1% in 2010.17 56% in 2009.13 A Senate inquiry on the reflect the economic cost of using those Despite the recent peak in motor vehicle investment of Commonwealth and state roads and such road charging leads to use, the overall increased number of 20 funds in public passenger transport considerable productivity benefits. The passenger motor vehicles and the overall infrastructure and services reported in basis of this argument is that road capacity increase in use of passenger motor August 2009 that metropolitan travel should be treated like any other scarce vehicles for personal transportation has measured by passenger-kilometres resource and its price should reflect the brought about the problem of traffic was as follows: 85–90% by car; 10% by supply and demand of that resource. For congestion in Australian cities. This has example, the chairman of the Australian public transport; and the rest by cycling Competition and Consumer Commission and walking.14 The most prominent been further exacerbated by historic has been quoted as stating:20 comment in the submissions was underfunding of transport infrastructure the need for improvements to public development and maintenance, increase “The most efficient way to ration or allocate limited transport services and for public transport in demand pressures created by a rapid capacity and for businesses and governments to use to be encouraged. A number of growth in population and economic receive the right signals about the need for new recommendations were made, including an activity, inefficient use of public transport infrastructure, is for users to face prices that vary investigation into tax incentive options for infrastructure and ineffective taxes according to the supply and demand conditions at public transport, and that the government and road user charges to manage road their time of use.” 18 should support behavioural change demand. Lower interest rates and This reasoning is theoretically sound programs.14 In 2012, 71% of people in the availability of alternative financial and can be rationalised as a charge Australia used private motor vehicles instruments have also increased the rate to consumers for external costs of to travel to work or full-time study, 16% of car ownership. In order to deal with the congestion, which then induces them to took public transport, 4% walked and 2% challenges created by the growth in the reduce their activities or use of that road cycled. The most common reasons for use of passenger motor vehicles including to the socially optimal level, known as Australians not using public transport are: congestion, it is submitted that government the Pigouvian prescription.21 However, no service available at all; convenience, action is required and appropriately funded in practice, a charge when applied to comfort and privacy; lack of service at policies need to be put in place. control the demand and supply of roads
THE TAX SPECIALIST | VOL 18(4) 147 in a limited area creates a number of reduce congestion, increase the use of lanes; variable tolls on entire road; cordon problems. First, people still have a need public transport especially buses, improve charges; or area-wide charges. to travel and reach their destination, and journey time for car users and to make A HOT lane is a designated lane that can therefore unless alternative routes or the distribution of goods and services be either used for free or for a discounted alternative modes of transportation needs more efficient.24 London congestion in the rate by high occupancy vehicles (HOV), are made available, people will continue charging zone successfully fell by 26% such as buses or motor cars with two or to use congested roads despite the extra as there was capacity for 50 to 60% of three occupants to promote car sharing, or cost of using those roads. Without suitable displaced car users to switch to public by paying a full charge by single occupant alternatives or close substitutes, the transport.25 vehicles. Thus, motor vehicles have a demand for the congested road becomes Many cities have a high standard of public choice of using a congested lane and incur inelastic, especially in the short term. A transport, yet suffer from congestion no charge or pay a fee and use a HOT similar effect is observed in the market for 27 during peak periods. Thus, congestion lane. HOT lanes are popular in the USA; fuel: increasing the cost of fuel by imposing taxes can be used to smooth demand and however, Australia currently does not have a tax does not reduce the demand for fuel, HOT lanes that are tolled.28 Australia does increase public transport patronage. In as the demand for fuel is inelastic in the have HOV lanes, which could be converted Stockholm, although extra bus services short term. Car fuel use declines about to HOT lanes. The popularity of HOT lanes were introduced in August 2005, their use 1.5% with any 10% increase in the price in the USA arose out of conversion of 22 only increased after January 2006 when of fuel. underutilised HOV lanes into HOT lanes, the congestion tax came into operation.26 The next problem is the availability of or adding capacity to an existing freeway Thus, if congestion tax is introduced in alternative routes. Research has shown where there is insufficient volume to Australian cities after putting in place an that successful implementation and justify HOV lane.29 Although private sector effective and efficient public transport acceptance of congestion charges requires involvement is common for toll roads, this system, it may assist in increasing a shift the following: an initial severe level of is not the case for HOT lanes.30 to public transport use and consequently congestion; ensuring that a charge is only Toll roads are common in many countries reducing car use. imposed when congestion is most severe; and in Australia toll roads have been a captive market, ie that is the only route; around since the 1800s. Examples application of suitable tolling technology; of Australian toll roads include: the and strict enforcement of the charging CityLink and EastLink urban freeways in regime.23 Melbourne; and Sydney Harbour Bridge The problem in Australian cities is to find and Tunnel, CrossCity Tunnel and Lane the only route where a congestion tax Traffic congestion Cove Tunnel. Tolling has a benefit in that it should be introduced. If it is not the only has become a provides funding for an investment in road route and people still have the need to infrastructure that can deliver benefits. travel to that area, they may start using growing concern However, the problem with new road alternative routes to avoid the congestion projects funded by tolls is trying to resolve tax, thereby causing congestion on another in most cities in a congestion problem with building more road or area. roads. The problem is that once cities Other alternatives are to provide enhanced Australia. reach a certain size, having a road network public transport services and parking large enough to meet the transport needs facilities outside the charging area and of citizens relying on single occupancy near transport hubs.23 However, this vehicles would need too many roads to requires long-term planning and a source be feasible given the available land area. Congestion taxes do raise equity concerns of funding as these facilities would need Mass transit, walking and cycling are so as the rich who can afford to pay the tax to be in place before a congestion tax much more efficient means of transport can buy the convenience of using the is introduced. Thus, the revenue from for the space they take. Once a city is road, leaving the less affluent to use public the congestion tax cannot be relied on at that size, adding an additional road transport which may not be as efficient and to fund public transport and car parking simply encourages more people to keep may reduce their productivity. A congestion infrastructure. driving, worsening the problem. This is tax may also affect business and private Congestion taxes have been successfully evident from comments made by experts, users differently. Businesses that incur implemented in some cities including ie transport consultants, engineer and the extra cost of the congestion tax may Singapore and London, however, the academics on the $6.8b East West Link in be able to pass on the cost to consumers success is largely attributed to those Melbourne. They have stated that the East and therefore the congestion tax may not places being well supplied with alternative West Link is not needed; that it will spread be the impetus for them to change their forms of efficient transport. In the case of congestion around a bit but won’t solve behaviour. Singapore, the success is based on the it and that a tilt towards a mass public 31 government’s long-term policy to control The next problem is the cost of transport system is better. their car population, a wider focus than implementing the congestion tax itself. Congestion taxes in the form of cordon just reducing congestion. Similarly, the Congestion taxes take various forms charges and area-wide charges have been London congestion charge was introduced including: variably priced lanes commonly successful in cities such as Singapore, in 2003 in a 21-kilometre zone mainly to known as “high occupancy toll” (HOT) London and Stockholm, but these places
148 THE TAX SPECIALIST | APRIL 2015 are different from Australian cities given and afternoon peak periods should be imposed by state and local government or the low population density of Australian trialled after taking into consideration the by the federal government applying it to cities and the related lack of effective borders of the charging and management the whole of Australia. This is discussed public transport systems. The difference system and the capacity of the public further in the next part where some wider between area-wide charges and a cordon transport system to handle the likely congestion management measures that scheme is that in an area-wide charge, the increase in patronage.33 With an effective have been advocated over the last decade charge applies to vehicles circulating within congestion charge, Perth could save through research and studies undertaken an area or a zone, whereas under cordon $1.6b in productivity losses in 2015 in by various government bodies and private charges, the charge is based on the vehicle terms of increased and unreliable travel institutions are explored. crossing the boundary. Cordon and area- times, pollution costs and additional fuel wide charges can be implemented in small costs.34 Building new roads or increasing Wider congestion management areas within a central business district capacity of existing roads has been ruled measures (CBD). However, in Australia, congestion out as providing a long-term solution to the A review of measures advocated in the occurs in more than just the CBDs. congestion problem in Western Australia, various studies undertaken in Australia Congestion is common in high streets but a congestion charge is recommended indicates that congestion charging is not which may or may not be near CBDs and on the basis that it has proved to be the only answer to reduce congestion in other major roads including freeways. The a highly effective solution to traffic Australian cities. administrative cost of setting up cordon or congestion problems in cities across the A study commissioned by the COAG area-wide congestion charges in multiple world and is likely to provide incentive to in 2006 examined a number of wider zones through Australian cities will become road users to either travel outside of peak solutions, both long- and short-term, to very costly to implement and also difficult periods or switch to public transport.35 combat congestion in Australian cities as to administer. Moreover, if successful, the The ERA final report was released in July summarised in Table 1. revenues from a congestion tax will decline 2014 and confirms the recommendations In 2008, the Australian Government over time as congestion reduces, in which of introducing a congestion charge in Perth commissioned a review of Australia’s future case the government may not be able to with the proviso that the establishment tax system commonly known as the Henry rely on recouping the cost of implementing of a congestion charge scheme will Tax Review. The need for a tax to change the tax through future revenue streams. require significant upfront investment and behaviour to drive less was recognised Thus, congestion charging may work in additional public transport expenditure to in the 2008 report, The architecture a small area, but is unlikely to provide a manage increases in demand. However, of Australia’s tax and transfer system, holistic solution on a large scale to the these costs are not considered a deterrent and that the current transport taxes in congestion problem in Australian cities on the basis that international experience Australia are unlikely to meet Australia’s and regions with different transport needs suggests a short-term payback period, future transport challenges.38 The report 36 and exposed to different state and local typically less than five years. to the Treasurer stated that the existing government policies. Introducing congestion tax can also be structure of Australia’s fuel tax, annual If a cordon charge or an area-wide charge politically difficult due to stakeholder registration and other road-related taxes is is implemented in a small area, for example concerns relating to not only equity and primarily designed to raise revenue. These the CBD in Perth, then other issues that fairness, but also privacy. In Australia, taxes more than cover the direct costs of should be considered in planning for the politics of a congestion charge can providing road infrastructure, but are not congestion charges include: differ based on whether the charge is capable of providing specific prices that whether exemption should be granted for service vehicles that need to access Table 1: Congestion management measures roads for delivery; solutions for residents who do not have Policy area Examples of policy types access to public transport; Road supply management Increased road capacity; enhanced public transport; assessment on bordering parking facilities HOV priority; speed control. and capacity of station parking areas; Road demand management Staggered/flexible work or school hours; household- whether the local road network where the – non-price measures based travel planning (TravelSmart); ride-sharing. traffic is diverted can cope with increased Road demand management Comprehensive road user charging schemes based wear and tear; and – price measures on area or cordon; select route charging, eg toll roads the impact on already established long- and HOT lanes; parking price control; fuel taxes; car and short-term parking bays in the CBD.32 purchase/ownership taxes. In 2014, the West Australian ERA Alternative passenger Major enhancement of public transport systems; car conducted an inquiry into microeconomic transport parking enhancement near public transport hubs; reform and congestion charging was provision of infrastructure for walking and cycling. included as one of the recommended Urban land use planning Changes in development densities; transit-oriented reforms. The draft report of that inquiry, developments. which was released in April 2014, Source: “Review of urban congestion, trends, impacts and solutions”, consultancy report prepared for recommended that a congestion charge for COAG.37 entering the CBD in Perth during morning
THE TAX SPECIALIST | VOL 18(4) 149 vary according to location or time of use. cities planning criteria that are agreed on Study of Singaporean As a principle for road transport taxes, by COAG; Government planning to deal the report outlined that transport-specific reduce congestion in Australian cities by with congestion taxes should only be imposed where they staggering school hours, increasing the Singapore’s traffic congestion problem 39 improve social and market outcomes. span of operating hours and frequency of has not been dealt with in isolation by just The conversation on environmental and public transport services; implementing a congestion charge in the social taxes that the Australian Government CBD. The Singaporean Government chose conduct congestion tax trials in capital had started in the Henry Tax Review, and to deal with the problem by first providing and major cities; the release of the report on Australia’s an efficient public transport system which develop and invest in strategies that future tax system review in 2010, was was planned in 1967 through a project continued in the tax forum that was include walking, cycling and public commissioned through the United Nations organised by the Australian Government transport infrastructure; Development Program.44 Under the plan, Treasury in October 2011, bringing together encourage car sharing through car emphasis was placed on the need to invest 180 representatives from the community, sharing schemes with public transport in island-wide transport infrastructure. business, government, academia and ticketing; and This has paid dividends as a recent study conducted by a London consulting firm, other tax experts to discuss priorities and develop a scheme similar to the fringe Credo, has found that Singapore has one further tax reform. Some of the opinions benefits tax for work-related public of the most cost-efficient public transport voiced at the 2011 tax forum session on transport trips.41 environmental and social taxes were: networks in the world and the economic In March 2014, a discussion paper Professor John Freebairn suggested that cost of transport to an individual commuter developed by Infrastructure Partnership user-pay fees for roads should be tied is 8.9% of GDP per capita. Copenhagen Australia and Deloitte, titled “Road pricing is stated to be the best performing city to the kilometres travelled per year, the and transport infrastructure funding: reform overall, with a cost of 8.6% of GDP per vehicle weight and the state of the road; pathways for Australia”, stated that the capita. The report from that study states Harry Clarke argued for comprehensive current road charging regimes in Australia that the best performing cities share congestion pricing in Australia by learning efficiency, broad coverage, integration and from the experiences in other places are ineffective and should be strategically clear planning.45 such as London, Stockholm and the reformed. The discussion paper advocates Netherlands; Ian Chalmers called for a universal road user charging model As part of the transport management plan, the abolition of the luxury car tax or its (URUC) should be considered to change the Singaporean Government implemented user behaviour based on the mass of the policies to control the vehicle population. redesign to encourage reduced CO2 emissions, and showed a preference for vehicle, the distance driven, the location of In June 1975, Singapore introduced an 43 alternative options in terms of road the road and the time of use. area licensing scheme covering the most broad-user charges and not just The probable conclusion that can be congested parts of the CBD during the morning peak hours between 7.30 am and congestion charging; Brendon Lyon called derived from these studies is that there 10.30 am. The result was a 73% reduction for a reasoned and seasoned debate is a call on the Australian Government in traffic entering the restricted zone. about how to deal with congestion and the to examine congestion management However, there was a 23% increase in infrastructure backlogs in Australia; and measures and implement policies to traffic between 7.00 am and 7.30 am. The Frank Stilwell favoured the use of taxes to combat congestion in Australian cities. In scheme was further extended in June 1989 change behaviours.40 doing so, the Australian Government needs to cover evening congestion from 4.30 pm to examine the cause of the congestion On 13 March 2013, the Moving Australia to 6.30 pm. In January 1994, a whole-day problem, ie reliance on passenger motor 2030 report, being a transport plan for licensing scheme was introduced to cover a productive and active Australia, was vehicles for personal transportation, and from 7.30 am to 6.30 pm with a lower fee 41 launched at Parliament House. The report not just provide a bandaid approach charged for a part-day license.46 In 1995, was prepared by the Moving People 2030 to fixing just the congestion in small the area licensing scheme was replaced Taskforce that was comprised of eight pockets. It is submitted in this article by electronic road pricing (ERP) requiring national organisations. The 2030 report that this task should be handled by the motor vehicle owners to install an in-vehicle states that an additional five million people Commonwealth Government and not unit in the car. will live in Australia by 2030 and Australia, just by state governments. As advocated Due to the increasing number of vehicles being an urbanised country, will have 90% by the Moving Australia 2030 report, a on the road, the ERP was not considered of its population living in cities, towns and dedicated Commonwealth Minister should sufficient to curb motor vehicle population near-city regions. This will have a greater be appointed with the task of exploring growth. Thus, the Singaporean Government impact on congestion, unless policies are and implementing the solution to the introduced its bold vehicle quota system 42 set in place now to prevent this outcome. congestion problem at a national level and that was implemented on 1 May 1990.47 Some of the key recommendations from oversee its implementation via COAG. In Under this system, the government controls that report are: finding the right path for Australia, lessons the release of new vehicles on the road by appoint a dedicated Commonwealth can be drawn from a study of how the determining the number of new vehicles Minister to integrate land use planning Singaporean Government has succeeded allowed for registration, taking into account and transport at a national level and in managing congestion in Singapore the traffic conditions and the proportion oversee the implementation of capital through sustainable long-term planning. which the vehicle category makes up of
150 THE TAX SPECIALIST | APRIL 2015 the total vehicle population. The vehicle cars as means of personal transportation; Road User Fee Task Force. The task quota for a given year is then administered and force recommended that the new revenue through a monthly release of certificates increase public transport infrastructure collection system collected at the fuelling of entitlement (COE). Thus, a Singaporean and public transport patronage and use of station, that would replace the fuel tax would need to purchase a COE to obtain other modes of transport, eg cycling. and be calculated on road use, directly the right to purchase a new vehicle. The connects to the burden each user of the The problem should then be resolved COE has a life span of 10 years, after on a national basis and this may require road places on the road system. Thus, which it expires and can only be retained changing both state and federal laws by the amount paid by the road user would by paying an additional fee. This system adopting a stick and carrot approach be classified as a fee for service, rather restricts the number of vehicles that are on which would require imposing charges to than general taxation unrelated to use. Singaporean roads.48 The COE payable in reform behaviour and rewarding people According to the taskforce, the new system Singapore for a popular Australian family for changed behaviours. A combined also paves the way to price congestion car, eg the Holden Epica, also called the Australian reform is required, impacting and manage traffic during peak periods by Chevrolet Epica, would have been about 53 on both state and federal laws on the creating multiple zones. SG$63,000 on 9 June 2011.49 purchase of the vehicle, annual road use, Lessons can also be drawn from the In addition to the cost of COE, a vehicle and the fuelling of the vehicle, as well as seven-year Dutch study that involved owner in Singapore is required to pay providing incentives to encourage the use innovative thinking on the part of the Dutch a registration fee of SG$140 and an of public transport and other modes of Government and recognised the need to additional registration fee of 100% of the transport, eg cycling. change the current policy pertaining to the vehicle’s open market value when the In Australia, both the Commonwealth taxation of motor vehicles. The Government vehicle is purchased. An annual road tax and the states impose a variety of taxes of the Netherlands recognised that there is also payable and the amount of road relating to passenger motor vehicles. is a problem with sustaining the current tax is based on the engine capacity of the The Commonwealth Government levies number of motor vehicles on Dutch roads, vehicle.50 the luxury car tax (LCT), import tariffs on and intended to use taxation as a tool to The lesson from the Singapore system passenger motor vehicles and fuel excise influence the Dutch people in changing is that effective policy requires putting on petrol and diesel that are uniform their travel behaviour, minimise road in place a holistic sustainable transport throughout the whole of Australia. The congestion and address environmental system and not just a stopgap solution to Commonwealth fringe benefits tax (FBT) concerns. The Dutch study proposed a improve traffic conditions in a limited area. also impacts on the purchase and use kilometre charge system measured with the The transport plans need to be updated to of motor vehicles in Australia. The states development of a mobimeter.54 take into consideration the factors that may impose taxes on vehicle purchase, transfer The Dutch policy was premised on the impact its sustainability. The Singapore of ownership and annual motor vehicle principle that increasing motoring costs Land and Transport Authority has registration fees, and these taxes vary per kilometre mitigates road traffic growth released Singapore’s 2013 Land Transport from state to state. It is submitted in this and thereby reduces congestion. Moreover, Master Plan that takes into consideration article that the existing motor vehicle taxes the pricing policy was intended to raise transport planning to 2030 and includes were mainly designed with the specific the government’s land use policy and the objective of raising revenue. Instead of additional revenue that could be used to economic growth for the country.51 having a variety of taxes with no specific build additional infrastructure that would further assist in reducing congestion. Australian cities may benefit from objectives other than raising revenue, a Similarly, revenues generated from an introduction of an ERP to reduce comprehensive tax on motor vehicles Australian motor vehicle taxation reform congestion in the short run. However, should be introduced that targets the can also be set aside for much-needed the lesson from Singapore is that an attributes of a reduction in the purchase improvements to the public transport overall federal government plan to impose and use of motor vehicles which in turn infrastructure. some form of taxation in order to reduce should lead to a reduction in congestion. ownership and usage of passenger motor A purchase tax similar to Singapore’s COE Although the kilometre charge system was vehicles is required for Australia. The next can be designed to reduce the number of not implemented in the Netherlands, many part analyses the wider taxation measures registered cars on Australian roads.52 The lessons can be learnt from the study for that the Australian Government should design can also incorporate other criteria, Australia, including the fact that without consider to tackle both long-term and such as the reduction of CO2 emissions, a strong political will, long-term planning short-term solutions to the congestion thereby encouraging smaller and lighter in the area of motor vehicle taxation and problem in Australia. cars as well as cars that are not reliant road user charges, although necessary, on fossil fuels. A comprehensive user- may not be achievable. It may be due to Taxation measures to combat pay system can also be designed that political reasons that no country in the congestion in Australian cities incorporates these criteria and discourages world has yet succeeded in implementing a Broader taxation measures to resolve the the use of motor vehicles for personal comprehensive user-pay system to charge congestion problem in Australian cities transportation. motorists a fee based on the kilometres should hinge on the following defined Lessons on the design of a comprehensive driven. However, there have been calls criteria: user-pay system can be drawn from the on the Australian Government to reform reduce the number of registered cars on Oregon mileage fee designed and piloted the current road charging regime with a Australian roads and control the use of by the parliamentary elected Oregon universal charge based on the mass of the
THE TAX SPECIALIST | VOL 18(4) 151 vehicle, the distance driven, the location of for other transport investments; there thinking is required to reduce congestion the road and the time of use.55 are many ways for drivers to adapt to a on Australian roads and the solution should Different considerations can be given congestion charge, such as using another not be restricted to just the introduction of to the criteria on which the charge is mode of transport, change of route, change a congestion tax. based. For example, the luxury energy time of travel or cancel discretionary trips 60 tax (LET) designed by the co-author of such as leisure and shopping. Dr Prafula Pearce, CTA this article (Pearce) in her PhD thesis, Further, the Australian Government needs Senior Lecturer Curtin Law School “Using tax and regulatory measures to to take a long-term view in reforming reform choice and usage of motor vehicles its motor vehicle taxation system. The Dr Dale Pinto, CTA (Life) for personal transportation in Australia government needs to set the scene and Professor of Taxation Law for the sustainability of oil”, premised show commitment and long-term planning Curtin Law School the allocation of progressive LET points to resolve the root cause of congestion, on the vehicle weight, engine capacity, ie reduce reliance on passenger motor Fellow, Tax Law and Policy Research Group Monash University engine power and CO2 emissions. The vehicles for personal transportation. The accumulated LET points were then reformed motor vehicle tax system should proposed to be taxed at four taxing points provide the opportunities and the required References being: the purchase of the vehicle; annual revenues to redesign and modernise the 1 Economic Regulation Authority, Inquiry into microeconomic reform in Western Australia, final registration; fuelling; and the disposal of Australian public transport infrastructure. report, 30 June 2014. the vehicle, by applying a set rate at each Many changes can be made, for example, 2 The Committee for Perth is an influential taxing point.56 if micro-light cars are encouraged for member-based organisation of Perth’s business and community leaders and its foundation members are In addition to the above policy changes, local area travel and public transport is ANZ, BHP Billiton, Chevron, Ernst & Young, Herbert federal government tax incentives can encouraged for medium to long-distance Smith, Freehills, Rio Tinto, Shell, Wesfarmers, The West Australian and Woodside. For a full list of be implemented in both income tax and travel, then car parking at the transport members, see www.committeeforperth.com.au/ FBT that would favour the use of public hubs will need to be changed. membershipCurrentMembers.html. transport. Examples of countries that Multi-storeyed or underground car 3 Committee for Perth, “Submission to the Economic encourage the use of public transport parks may be required to cater for the Regulation Authority”, Inquiry into microeconomic reform in Western Australia, 9 May 2014. via generous tax treatment include: increase in need for parking. Car parks 4 Booz Allen Hamilton, Review of urban congestion Belgium, France, Germany, Poland and the could be automated or even robotised trends, impacts and solutions, consultancy report Netherlands. In these countries, employee for convenience, including a provision for prepared for the Council of Australian Governments, 2006, p 5. paid public transport expenses are reserved and prepaid parking spots. Many deductible, whereas in Canada, the cost 5 See Bureau of Transport and Regional Economics, countries in the world are introducing Estimating urban traffic and congestion cost of public transit passes may be eligible for smart car parking stations with computer trends for Australian cities, working paper no. 71, 57 a non-refundable tax credit. Switzerland controlled parking levels, where the Department of Transport and Regional Services, permits a deduction of €579 to employees 2007; Department of Infrastructure and Regional driver enters the car park and the car is Development, Trends infrastructure and transport for cycling to work and a full deduction for automatically parked using automated to 2030, report, 2014; Infrastructure Partnership 58 public transport costs. conveyor belts and lifts. When the driver Australia and Deloitte, Road pricing and transport infrastructure funding: reform pathways for Australia, returns and requests the car via the parking Conclusion discussion paper, 2014. meter, the car is automatically brought 6 Australian Bureau of Statistics, Australian social There are many ways to deal with back to the driver. A very good example of trends, 1996, cat no. 4102.0, 24 June 1996, pp 159-70. congestion and introducing a congestion such a car park is in Wolfburg, Germany, 7 Australian Bureau of Statistics, Motor vehicle tax or building more roads is likely to be census, Australia, 31 Mar 2009, cat no. 9309.0, p 10. where a 10-level car park is fully automated Available at www.abs.gov.au. a bandaid solution. The overwhelming 61 with six entry and exit lanes. 8 Ibid p 14. body of international evidence suggests A rapid public transport system would 9 Australian Bureau of Statistics, Motor vehicle census, that building bigger and wider roads Australia, 31 Jan 2011, cat no. 9309.0, 28 July 2011. actually makes traffic worse. Targeted enhance its usability. An increase in light trains may be necessary to join one 10 Australian Bureau of Statistics, Motor vehicle census, infrastructure upgrades, the use of vehicle Australia, 31 Jan 2012, cat no. 9309.0, 22 August management and information technologies, suburb to another, and there could be an 2012. and improving the use of road networks opportunity to install a limited number 11 See Australian Bureau of Statistics, “Use of urban of high speed trains like the trains used public transport in Australia”, in Year book Australia, by public transport vehicles, ie buses and 2005, cat no. 1301.0, 21 January 2005; Australian in China, Japan and some European trams, can assist in reducing congestion.59 Bureau of Statistics, Australian social trends, 1996, Priority lanes can be allocated for buses for cities. The public transport system can cat no. 4102.0, 24 June 1996, pp 159-70; Australian be modernised with a range of different Bureau of Statistics, Motor vehicle census, Australia, effective public transport and a free flow 31 Mar 2009, cat no. 9309.0, pp 10 and 14. services instead of one type of service that of traffic can be enhanced by appropriate 12 See Australian Bureau of Statistics, “Use of urban traffic lights, appropriate traffic speeds fits all. There could be a provision where a public transport in Australia”, in Year book Australia, and appropriate parking controls and person could pay extra to reserve a seat in 2005, cat no. 1301.0, 21 January 2005. designated clearways. Noteworthy lessons a particular suburban train. In this way, the 13 Australian Bureau of Statistics, Year book Australia, 2009–10, cat no. 1301.0, 4 June 2010, p 84. from the Stockholm congestion charging person is assured of a seat, and the train service can be converted from cattle class 14 Senate Rural and Regional Affairs and Transport scheme include: investment in road and Committee, Parliament of Australia, “Executive public transport will not necessarily to jet class. summary and recommendations”, in Investment of Commonwealth and state funds in public passenger eliminate congestion; congestion charging The message from this article is that a transport infrastructure and services, 2009. Available will reduce, but not eliminate the need new way with broader and forward-looking at www.aph.gov.au/Parliamentary_Business/
152 THE TAX SPECIALIST | APRIL 2015 Committees/Custom_Contents/SenateCommittees/ 34 Bureau of Infrastructure, Transport and Regional pilot program report to the 73rd Oregon Legislative rratctte/publictransport/report. Economics, Estimating urban traffic and congestion Assembly, report on proposed alternatives to the 15 Australian Bureau of Statistics, “Car nation”, in cost trends for Australian cities, 2007. current system of taxing highway use through motor Australian social trends, 2014, cat no. 4102.0, 35 Economic Regulation Authority, Inquiry into vehicle fuel taxes, June 2005, pp 1-55; Oregon 5 March 2014. microeconomic reform in Western Australia, fact Department of Transportation, Oregon’s mileage fee sheet, July 2014. concept and road user fee pilot program final report, 16 T Litman, The future isn’t what it used to be, 2012, final report, Oregon Department of Transportation, Victoria Transport Policy Institute, p 6. Available at 36 Economic Regulation Authority, Inquiry into November 2007. www.vtpi.org/future.pdf. microeconomic reform in Western Australia, final report, June 2014, p 114. 54 Ministerie van Verkeer en Waterstaat, “Road pricing 17 Australian Bureau of Statistics, Survey of motor in the Netherlands: lessons learned”, presentation, vehicle use, Australia, 12 months ended 31 October 37 Booz Allen Hamilton, Review of urban congestion 21 April 2010, p 7; Ministry of Transport, Public 2010, cat no. 9208.0, 23 August 2011. trends, impacts and solutions, consultancy report Works and Water Management, “Pay per kilometre 18 Infrastructure Partnership Australia and prepared for the Council of Australian Governments, progress report”, Dutch National Traffic and PricewaterhouseCoopers, Urban transport challenge: 2006, p 7. Transport Plan (Nationaal Verkeers-en Vervoersplan), a role for road pricing in Australian context, 38 Treasury, Architecture of Australia’s tax and November 2001; P Werther, “Kilometer pricing in the discussion paper, 2008, p 5. transfer system, August 2008. Available at http:// Netherlands”, project notes, Ministry of Transport, Public Works and Water Management, 2009. 19 J Luk and E Chung, Public acceptance and taxreview.treasury.gov.au/content/downloads/report/ technologies for road pricing, research report ARR Architecture_of_Australias_Tax_and_Transfer_ 55 Infrastructure Partnership Australia and Deloitte, 307 for ARRB Transport Research Ltd, p 1. System_Revised.pdf. Road pricing and transport infrastructure funding: reform pathways for Australia, discussion paper, 20 B Robins, “ACCC’s Rod Sims calls for ‘congestion 39 Treasury, “Chapter E: Enhancing social and market 2014. pricing’”, The Sydney Morning Herald, BusinessDay outcomes”, in Australia’s future tax system, final (Sydney), 7 August 2014. report: detailed analysis, 2 May 2010. Available at 56 See the published thesis of P Pearce, Using tax and http://taxreview.treasury.gov.au/content/FinalReport. regulatory measures to reform choice and usage 21 See AC Pigou, The economics of welfare, aspx?doc=html/Publications/Papers/Final_Report_ of motor vehicles for personal transportation in Macmillan, 1920, in FH Knight, “Some fallacies in Part_2/Chapter_e.htm. Australia for the sustainability of oil, Australian Tax the interpretation of social cost”, (1924) 38 Quarterly Research Foundation, 2013 (research study 48). Journal of Economics 582; AC Pigou, The economics 40 Commonwealth of Australia, “Environmental and The full text of the thesis is also available at http:// of welfare, Macmillan and Co, 1920, in J Freebairn, social taxes”, transcript of session 3 at the 2011 Tax espace.library.curtin.edu.au/R?func=dbin-jump- “Environmental taxation and its possible application Forum: Next Steps for Australia, Parliament House, full&local_base=gen01-era02&object_id=188723. in Australia”, paper prepared for the Treasury, Canberra, 4–5 October (J Freebairn, H Clarke, Canberra, May 2009. I Chalmers and B Lyon). Available at www.futuretax. 57 M Harding, “Personal tax treatment of company cars gov.au/content/Content.aspx?doc=TaxForum/ and commuting expenses: estimating the fiscal and 22 Senate Select Committee on Fuel and Energy, transcripts/session_3.htm. environment costs”, Taxation Working Papers No. 20, Parliament of Australia, The CPRS: economic cost Organisation for Economic Co-Operation and without environmental benefit, interim report, May 41 Moving People 2030 Taskforce, Moving Australia Development, 2014, p 40. 2009, p 185. 2030 – a transport plan for a productive and active Australia, 2013. Available at http://ozebus.com.au/ 58 Ibid pp 41 and 46. 23 See discussion in Booz Allen Hamilton, Review of solutions-for-moving-people/moving-australia-2030. urban congestion trends, impacts and solutions, 59 Booz Allen Hamilton, Review of urban congestion consultancy report prepared for the Council of 42 Ibid p 13. trends, impacts and solutions, consultancy report Australian Governments, 2006, p 19. 43 Infrastructure Partnership Australia and Deloitte, prepared for the Council of Australian Governments, 2006, p 10. 24 Transport for London, Central London congestion Road pricing and transport infrastructure funding: charging impacts monitoring, fourth annual report, reform pathways for Australia, discussion paper, 60 J Walker, The acceptability of road pricing, report June 2006, p 11. 2014, pp 7-9. prepared for the Royal Automobile Club Foundation, May 2011, p 16. 25 J Walker, The acceptability of road pricing, report 44 TF Fwa, Sustainable urban transportation planning prepared for the Royal Automobile Club Foundation, and development – issues and challenges for 61 See demonstration of an automated car park May 2011, p 40. Singapore, research paper, Centre for Transportation available at http://www.youtube.com/watch?v=UrCm Research, Department of Civil Engineering, National PWCgCRQ&feature=related. 26 Ibid p x. University of Singapore, 2004, p 1. 27 California has State Route 91 Express Lanes in 45 Credo Business Consulting, The mobility Orange County and Interstate 15 in San Diego; opportunity, consultancy report prepared for Texas has I-10 facility in Houston; Minnesota has Siemens AG, November 2014, p 9. facility Interstate 394 in Minneapolis; Colorado has Interstate 25 in Denver. 46 J Luk and E Chung, Public acceptance and technologies for road pricing, research report ARR 28 Australia has a number of toll projects that are 307 for ARRB Transport Research Ltd, p 6. governed by specific legislation, for example, the Melbourne City Link Act 1995 (Vic), the EastLink 47 LY Der and LW Yan, “Managing congestion in Project Act 2004 (Vic) in Melbourne, and the Sydney Singapore — a behavioural economics perspective”, Harbour Tunnel (Private Joint Venture) Act 1987 May 2009 Journeys 17. (NSW). CM Naudé, “Some like it HOT: a comparison 48 Land Transport Authority, Vehicle ownership – of toll roads and high occupancy toll lanes”, paper vehicle policies & schemes, 24 November 2009, presented at the Australasian Transport Research Singaporean Government. Available at www.lta.gov. Forum 2011, Adelaide, 28-30 September 2011, p 4. sg/content/lta/en.html. 29 RW Poole Jr and K Orski, “HOT lanes: a better way 49 Land Transport Authority, One motoring, to attack urban highway congestion”, (2000) 23(1) Singaporean Government. Available at www. Regulation 18. onemotoring.com.sg/publish/onemotoring/en.html. 30 CM Naudé, “Some like it HOT: a comparison of 50 Land Transport Authority, Vehicle ownership – toll roads and high occupancy toll lanes”, paper vehicle tax structure, Singaporean Government. presented at the Australasian Transport Research Available at www.lta.gov.sg/content/lta/en.html. Forum 2011, Adelaide, 28-30 September 2011, p 5. 51 PwC Singapore, The Singapore land transport 31 G Alcorn, “East West Link: the case for and against master plan 2013 – a review by PwC. Available at Melbourne’s $6.8bn road”, The Guardian, 10 October http://read.pwc.com/i/205626. 2014. Available at www.theguardian.com/australia- 52 Lessons can also be drawn from the Norwegian news/2014/oct/10/-sp-east-west-link-18km-road- Government’s motor vehicle purchase tax which is election-flashpoint. quite high with progressive rates of tax imposed on 32 West Australian Local Government Association, three components of a motor vehicle, ie the weight,
Inquiry into microeconomic reform in Western the engine power and CO2 emissions. Australia, interim submission to the Economic 53 “Alternatives to motor vehicle fuel taxes”, 71st Regulation Authority, May 2014, p 5. Oregon Legislative Assembly – 2001 Regular 33 Economic Regulation Authority, Inquiry into Session, House Bill 3946 (March 2003), Appendix A, microeconomic reform in Western Australia, draft p 1. See also Oregon Department of Transportation, report, April 2014, p 1. Oregon’s mileage fee concept and road user fee
THE TAX SPECIALIST | VOL 18(4) 153