Wednesday, 2 December 2015
by leave—Last week the government announced that it will accelerate work with states and territories on heavy vehicle road reform and investigate the benefits, costs and potential next steps of options to introduce cost-reflective road pricing for all vehicles. This formed part of the government's response to the Harper Competition Policy Review and particularly its recommendation 3, that:
Governments should introduce cost-reflective road pricing with the aid of new technologies, with pricing subject to independent oversight and revenues used for road construction, maintenance and safety … indirect charges and taxes on road users should be reduced as direct pricing is increased.
At the outset I want to highlight an important aspect of this recommendation: it does not involve a call for higher overall charges on road users. On the contrary, the recommendation is that any introduction of direct road pricing should be accompanied by reductions of indirect charges and taxes on road users.
The principle of moving towards cost-reflective road pricing is an important one—offering the promise over time of roads which flow more freely and better meet the needs of road users. There has been growing debate in recent years about the need to charge for road use in a fairer, more consistent, logical and efficient fashion than occurs today.
A number of participants in that debate expressed their support, last week, for the direction the Turnbull government has signalled on this issue. Business Council of Australia Chief Executive Jennifer Westacott said that the Business Council welcomes the government's intention to pursue much-needed reform in areas essential for business competitiveness, such as road pricing.
Australian Automobile Association Chief Executive Michael Bradley said that the package of economic reforms would provide increased choice and competition for Australian motorists. In particular, he said that the AAA was pleased that the government supported a number of recommendations including those related to cost-reflective road pricing.
Infrastructure Partnerships Australia Chief Executive Brendan Lyon said that the commitment to a process to reform road user charging is welcome and is in the national interest. Mr Lyon also called for Labor to also welcome this recommendation in due course, to allow this issue to move forward.
In this regard it is noteworthy that in a recent article in the Sunday Times the member for Perth, Alannah MacTiernan expressed a strong view in favour of the user pays principle for road infrastructure.
The policy direction recommended by the Harper review is broadly consistent with other policy reviews over the last few years. In 2010 the then Treasurer received the report of a comprehensive study into Australia's future tax system, known as the Henry review. This contained a recommendation that in time fuel and vehicle registration charges should be abolished, on the basis that they were replaced by 'more efficient road user charges.' Last year the Productivity Commission reported on its study into the funding and financing of public infrastructure, and recommended:
Well-designed user charges should be used to the fullest extent that can be economically justified.
The Commission argued that:
Significant institutional and longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology.
Infrastructure Australia commented on this issue when it released its Infrastructure Audit earlier this year:
Over recent years rates of public and private investment in infrastructure have been higher than the long-term average.
The current level of funding is unsustainable in the face of increasing budget pressure.
Current arrangements represent the most significant opportunity for public policy reform in Australia's infrastructure sectors.
The country needs to consider a broader system of transport pricing for both road and public transport.
It is useful to briefly review some of the main arguments that are put for a transition to a road pricing approach. The first is that our current system for funding roads is under growing pressure. Roads are funded out of general government revenue, by all three levels of government, and the total amount spent each year nationally happens to be broadly in line with what governments receive each year through registration and other charges at the state level and fuel excise tax at the federal level. However, the required amount of road spending is likely to rise—and at the same time longer-term trends such as more fuel efficient vehicles and the rise of electric vehicles means that the fuel excise revenue stream may not be sufficient to meet the required amount of spending.
A second argument is that a well-designed road pricing system has the potential to make the provision of roads more responsive to what road users want, because the supply of new road capacity would be responsive to market signals. In addition, there would likely be new options for financing new roads out of the revenue stream that the new road would generate. A third factor is that, until relatively recently, it was a complex task to determine the number of kilometres a vehicle had travelled and to levy a suitable charge. Advances in technology now make it much easier and cheaper to determine this—for example, through the use of GPS based telematics devices in a vehicle which capture data and report it over a network. This can be data about not just the distance travelled but also variables such as fuel usage, the vehicle's weight, the particular route travelled and so on—which, for example, could potentially allow for different rates to be charged for roads of different quality standards. Of course, it will be important to maintain confidentiality and privacy safeguards and this is an issue that will need to be worked through very carefully.
The Turnbull government will work closely with state and territory governments to progress work on fairer, more efficient pricing that is cost reflective. We are also willing to consider payments to states and territories for reforms that improve productivity and lead to economic growth in order to encourage action. A principle of these payments is that they should be made on the basis of actual implementation of reforms. In progressing our response to this recommendation of the Harper review, the government will build on significant work underway around Australia. For example, there is work being done on heavy vehicle pricing under the oversight of the Transport and Infrastructure Council of federal, state and territory transport ministers. We will continue consultations with the states and territories on ways to promote efficient investment in and usage of roads in line with other infrastructure sectors, focusing on ensuring road infrastructure services best and most effectively meet the needs of users.
The next step will be to report to COAG, including on steps to transition to independent heavy vehicle price regulation by 2017-18. This independent and transparent pricing will be a key component of the reforms in order to provide the fairness sought by industry. Australian Trucking Association Chief Executive Christopher Melham said last week:
The introduction of cost-reflective road pricing must include the establishment of an independent economic regulator to set fair, enforceable prices for road users.
We are already taking tangible steps on heavy vehicle pricing. In South Australia, the Commonwealth and South Australian governments have agreed to establish a joint working group to oversee a simulation charge trial that will test the logic, fairness and structure of alternative road user charging. The trial will go some way towards collecting the necessary data to consider how existing truck revenue can be collected more fairly and invested more efficiently in our transport network.
The Turnbull government is also working with the Western Australian government in relation to the proposed Perth freight link, which will deliver cost savings for the freight industry through time savings and reduced vehicle operating costs. The project would represent the first time a heavy vehicle charge would be applied on a specific route in Western Australia to assist in building a road and the first time GPs based technology would be adopted for distance based user charging purposes.
There are going to be a number of complex issues government will need to work through. One, as I mentioned earlier, is confidentiality and privacy issues. The second issue is getting a better understanding of the way that road users—in both heavy vehicles and other vehicles such as cars—would change their road user behaviour, if at all, in the face of a move to distance based pricing. The proposed heavy vehicle trial in South Australia, which I mentioned earlier, is expected to generate useful data in this regard. Another trial is being conducted by motorway company Transurban in Melbourne. The Transurban road usage study involves a significant number of volunteer road users and covers the Melbourne metro road network. The trial will provide valuable insights into how road users change their behaviour under three charging scenarios: a per kilometre charge; a one-off charge based on anticipated travel; and a per-trip or access charge.
A third issue is addressing the specific needs of the trucking industry, particularly as we have identified heavy vehicle road reform as an initial priority. The government understands that there are a range of views held in the trucking industry, and we will certainly be consulting closely with the industry. A fourth important issue is the equity implications of the greater use of road pricing. In considering this issue, the Australian government expects to give careful thought to community service obligations, service level standards and how best to structure charges across road networks.
There is still a lot of work to do on understanding what impacts road pricing would have on all users of the road system and the broader economy. We will need to be satisfied that there is a reasonable degree of community acceptance and understanding. In turn, this will require a demonstration that the benefits from a broader use of road pricing would exceed the costs. Any change to the current system of road funding must improve transparency—and deliver clear community benefits. We will continue to work with the states and territories through the COAG process, and with industry and the community, to ensure we get this right. There is a considerable amount of work in front of the Australian government, and state and territory governments, on this important issue. But it is a reform direction which holds significant promise—and that is why the Turnbull government has clearly indicated the path we intend to pursue on this issue.
I present the following document:
The Australian government’s response to the Harper Review’s recommendations on road pricing—Statement by the Minister for Major Projects, Territories and Local Government, Mr Paul Fletcher MP, 2 December 2015.
I rise to respond to the ministerial statement that you make when you are not really making a ministerial statement, because there are no real initiatives in the ministerial statement on the government's response to the Harper review's recommendations on road pricing. There is nothing additional and there is no new, specific action outlined in that statement. We have a number of ministerial statements this morning, essentially because the government appear to have run out of business! Indeed, for this afternoon they have listed 'annual ministerial infrastructure statement' but no speakers in case the bills are all concluded, because the bills that are there on the program are not particularly controversial.
It says something about this government—that it has run out of steam after just two years and that it does not have a sense of purpose, apart from members' individual advancement over each other, and we are seeing that played out in the civil war that is going on between the Abbott supporters and the Turnbull supporters in the government. The junior minister, the Minister for Territories, Local Government and Major Projects, who presented this ministerial statement is one of the people who were promoted recently with the change of leadership.
The road user charge debate is not new. Like the minister's recent discovery of smart infrastructure, there have been projects like Labor's managed motorways program that were put in place and provided with funding. That program was then cut by the coalition government, but it has been 'rediscovered', with some funding reinstated to pretend that it is new. This debate is not new either.
The issue is a serious one. It has been canvassed in earlier reviews, including the Henry tax review in 2010 and the Productivity Commission report into public infrastructure of 2014. Many of these official reports have noted the widening deficit gap between revenue and expenditure on our national road network, which is approximately 800,000 kilometres in length. In the latest available figures from BITRE, the Bureau of Infrastructure, Transport and Regional Economics, spending by all governments on roads in 2012-13 was just under $24 billion. BITRE estimated that federally, mainly via excise, and in the states and territories—mainly via registration, stamp duty and tolls—combined revenue was about $18.4 billion. However, that should not be used as an excuse to not fund projects that have merit and that will actually help economic growth after proper cost-benefit analysis.
I am concerned that since the change of government, if you compare the September 2013 quarter, the last quarter under the former government, and June 2015, the latest quarter available, Australian Bureau of Statistics figures show public sector infrastructure investment has fallen by more than 20 per cent. That is of real concern.
Consideration of how to address the road deficit was part of the former government's microeconomic reform agenda, and it was being progressed at COAG. The Heavy Vehicle Charging and Investment reform project looked to migrate from a fuel based road user charge system established in 1992 to a commercial, more directly user based system, rather than relying on fuel excise and registration charges. It was reporting through the transport ministerial council. I note that last month, at the ministerial council, ministers agreed to further work to develop asset registers and expenditure plans for key freight routes as a significant step towards developing a model for our road system.
I think it is also significant that Jay Weatherill, the very innovative Premier of South Australia, when he spoke in Canberra in July, offered to host a trial of mass-distance-location charging for heavy vehicles in South Australia. I understand that the Commonwealth has agreed to work with South Australia to keep momentum around this project. South Australia, in consultation with industry, has identified two heavily used road networks that also form part of the national network. Participants in the trial will be direct-charged based on their actual use of the network and will be eligible for rebates on the tax paid for the fuel used. Work is now starting on developing a direct-charging model for the trial.
Separately, Transurban, the operator of the majority of our nation's toll ways, is trialling different charging methods for volunteer users on the Melbourne road network. This work will, hopefully, provide new insights into the costs and benefits of different charging methods. I know that Victoria and New South Wales were keen to have a trial based on heavy vehicle user charging as well. In particular, the New South Wales roads minister in my time as minister, Duncan Gay, was very keen to provide leadership on this issue.
The decision at the 6 November 2015 ministerial council meeting was to freeze rather than reduce the current road user charge for heavy vehicles. I note that the trucking industry, through the ATA, have expressed concern that this decision will result in an overcharging of the heavy vehicle sector for their use of public roads, by some $500 million over two years. We do need to make sure that the pricing mechanisms are appropriate if there is to be that ongoing support.
I want to raise the issue of the Bingara Accord that was promoted under the leadership of Infrastructure Australia. Infrastructure Australia released a report under the then Infrastructure Australia coordinator, Michael Deegan, called Spend more, waste more, which was highly critical of how roads are funded in Australia. Under Mr Deegan, Infrastructure Australia took a very assertive approach, which was often an approach that I did not agree with, but that is precisely the role that an independent body like Infrastructure Australia should be able to play. For example, on one occasion, Infrastructure Australia advocated a toll on the Pacific Highway, something that I certainly did not support. But it is up to a body like that to put forward ideas and to ensure that there has been proper scrutiny of government decision making. The Bingara Accord, also known as the national road asset reporting pilot, was, I think, quite extraordinary. The pilot involved eight local governments spanning the New South Wales-Queensland border, working with Infrastructure Australia. Seven of the eight local governments produced condition reports for every road in their jurisdictions. Individual condition reports for those jurisdictions are included in annexes to the report, which the interim Infrastructure Australia chief, John Fitzgerald, told Senate estimates he had not bothered to read. Indeed, the report was never released publicly, unfortunately, and it should be. The pilot showed that, with access to accurate condition reports such as these, rigorous business cases can be produced for the road funding proposals. This was very much a local community initiative working with the private sector and business, particularly in agriculture, trying to work out how you could actually secure funding, particularly private sector investment, based upon usage of roads across those local government areas. This was an innovative initiative which, unfortunately, seems to have been shelved. I would say to the minister that this sort of initiative from the ground up, supported by Infrastructure Australia, is worthy of further consideration.
I will conclude with this: my concern about these issues is that we need to take equity into account. Poor people do drive cars, contrary to what Joe Hockey told the parliament. The fact is that people in our regional areas and in the outer suburbs have less income than many in the inner areas of our cities, and we need to make sure that there is equity in terms of not placing an increased burden on those people who can least afford to pay. That has to be part of any analysis if a shift in road pricing is going to occur.