Environmental and social taxes: reforming road pricing in Australia

Abstract

Pricing of road use, both in Australia and elsewhere, has long been recognised as an area where current arrangements are economically inefficient but also politically very difficult to change. The 2011 Australian Tax Forum provides an opportunity to revisit this question and lay out a pathway for change. This paper summarises some past analyses of the costs of road use in Australia, to demonstrate the broad extent of under-recovery of costs. The external costs, such as congestion, accidents and greenhouse gas emissions, which are the reason for the cost recovery gap are outlined. International experience with congestion charging, a key component (but not the whole) of road pricing reform is summarised, showing how sustained reductions in congestion levels and associated costs are achievable. That experience also shows the importance of political leadership to achieve implementation, often in the face of minority support pre-implementation. Some illustrative calculations of how Australian road use charges may need to increase, on average, under a reformed road pricing regime are presented. The paper concludes by arguing that an independently run two year community conversation around reforming road pricing, reporting to COAG, is the critical starting point if there is to be a successful implementation program.