Thank you to IAQ for hosting this event and to Steve for inviting me to present here in Brisbane.
Road reform is a major area of advocacy for Infrastructure Australia, and it has been a personal passion of mine for nearly a decade.
I would not be overstating the case in saying that it is one of the most pressing infrastructure reform challenges in Australia today. It is also one of the last major unreformed utilities without a price signal in Australia.
It is the type of wicked problem that requires sustained and committed political leadership and public engagement.
We know from the last period of substantial micro economic reform that productivity enhancing reforms are, by their nature, difficult.
Reform often requires considerable changes to the way existing structures function, and can disrupt familiar processes that conflict with entrenched interests.
But, we also know that the rewards of reform are substantial.
From the 1960s to the early 1980s, Australia was a highly regulated, largely closed economy, with a number of inefficient public sector monopolies—and, by international standards, a comparatively poor economic performer.
But with the National Competition Policy reforms of the 1980s and 1990s, Australia was transformed into an open, dynamic, flexible and highly productive economy.
Perhaps more remarkable than the reforms themselves, was the ability of the Government of the day to forge a working consensus between business, the union movement and the broader community.
This consensus was no accident. It was achieved in part through a sophisticated conversation with the public about the problems Australia faced, and the relative trade-offs of action to solve these problems.
It was made clear to the public that without significant change, Australia could become an ‘economic backwater’.
By presenting the problem in such stark terms—as one that spoke to people's individual material circumstances—Australia's political leaders were able to articulate the value and importance of reform, and make a compelling case for change.
But the world has changed since the 1980s and 1990s. Citizens have come to expect far more out of their elected governments, while, at the same time, drawing from an ever narrower pool of views, typically already aligned with their own.
The political environment has become far more contested and fragmented than ever before, and the public are far less trusting of their representatives.
In this new world it is much harder to sustain public debate, let alone the type of public deliberation necessary to enact reform.
But maybe the reforms of the 80s and 90s era still has something to teach us. Paul Keating used to say that enacting reform was a matter of spinning a tale about complex ideas.
And at the heart of all great tales is a villain, a victim, and a hero. And to my mind our current road pricing dilemma has all the ingredients for such a tale.
Current Road Pricing System
For the purpose of this address, let us imagine then that the villain of this story is the current road pricing system.
As Infrastructure Australia and many industry associations here see it, the current system is unfair, inefficient and unsustainable.
As everyone in this room would well know, Australians currently pay to use the road network through a combination of fuel excise paid at the pump, vehicle registration, stamp duty and other charges and topped up by general taxation.
On average, motorists pay over $1,300 a year in road related taxes. And that's before the cost of fuel, maintenance, insurance and tolls are included.
In over a century, we haven't changed the way we invest in our roads or recover the costs.
This is because for over 100 years' fuel excise had been an effective way of paying for roads and a reasonable proxy for road use. But this is no longer the case.
Today, fuel excise raises less than half of what Australian governments of all levels spend on roads.
And the CSIRO has found that fuel excise revenue is projected to fall in real terms by up to 45 per cent by 2050, that's despite our population, economy and number of vehicle kilometres travelled all growing.
The shift towards electric and fuel efficient vehicles makes this inevitable, and irreversible without fundamental change.
The fall in revenue will accelerate over coming decades and governments will effectively be collecting less revenue from users while the costs to build and maintain the roads will continue to grow.
Our current system is inefficient
Another weakness in the current system is that road users do not receive price signals to minimise their impact on other users and the broader network.
The absence of price signals means users have only limited information and incentives to use the network efficiently.
The most critical period for our transport system is the morning and afternoon peak when people are travelling to and from work, dropping or picking up their children from school, and making deliveries to businesses.
This demand puts a strain on the entire urban transport network, not just its strategic corridors.
But, according to some Australian government studies up to 40% of the weekday afternoon peak is purely discretionary travel, meaning that 40% of the congestion at this key time does not need to be there.
The result is a network which is chronically congested for portions of the day, but with excess capacity across most of the 24-hour cycle.
If users had a clearer signal of when the best time to travel is, they would make more informed decisions. And infrastructure operators and investors would have a steadier funding stream to build and operate the modern infrastructure that is needed.
And our current system is also unfair
But perhaps the most compelling issue for the general public, and one that should feature prominently in any debate about road reform, is the current inequity of the system.
The system is unfair because the link between usage and charging is weak. The system sees taxpayers subsidise all users, and those who use the network less are in effect paying a subsidy to support those who use it most.
In real terms this means that Australians who drive Holden Commodores are paying three times as much consumption tax as those who own hybrid vehicles such as the Toyota Prius.
Owners of old six-cylinder sedans such as the 2004 Commodore pay about 4.5c in fuel excise for every kilometre they drive, compared with 3.4c for a 2010 Renault Megane and just 1.5c for a 2014 Toyota Prius.
All the while, the owner of a Tesla electric car pays no fuel excise at all, yet he or she shares the road with motorists paying hundreds of dollars a year in a tax that is meant to fund road maintenance and new construction.
But it's not just how much people are paying. It's the differing levels of service that they receive based on where they live —for the same cost.
Why should a farmer driving on potholed roads in the regions pay the same—or arguably more—through fuel excise and registration, as the attendees here pay to drive through a well serviced CBD?
If the current system is the villain, then it is these disadvantaged road users—the farmer and the Holden Commodore owner—that are the real victims in this story.
To progress road reform then, we need a detailed, calm conversation, and we need it take place outside of day-to-day politics.
But because there is a lack of transparency and an equal lack of awareness about how the system currently operates, it is very difficult to have an informed conversation with the public about these problems and the need for change.
That is why in early 2016, when we released the Australian Infrastructure Plan, we made a recommendation to the Australian Government that they initiate a public inquiry into the existing funding framework for roads.
We recommended that the inquiry should be led by an independent body and supported by large-scale voluntary pilots of road user charging options.
It should explore:
- Flaws in the existing charging framework—including fairness, financial sustainability and economic efficiency;
- The optimal approach for road user charging and transport infrastructure funding in Australia;
- The social implications of charging reform, including transitional and distributional impacts of replacing current taxation with direct user charges; and
- A detailed reform pathway for transition to a full user pays model for roads.
The Australian Government committed in their Response to the Australian Infrastructure Planto an independent inquiry on the potential benefits and impacts of road market reform.
Such a public inquiry can be the hero of this story—with it we have an excellent opportunity to build consensus within government, industry and the community.
But to build that consensus we must have a genuine opportunity for authentic public deliberation on these issues—we must give the public the chance to weigh up the costs and benefits of the potential solutions.
This is not a radical or even novel idea. Because practically everyone is impacted or at least subject to a collective decision of government on road reform, it necessarily follows that all individuals should be afforded the opportunity for authentic deliberation on that decision.
We cannot and should not come back with a single fixed solution to the current dilemma before we've had this opportunity.
That is why the inquiry must focus on—and I stress it again:
- Explaining the problem;
- Educating the community about the flaws in the current approach, and most importantly;
- Drawing a link between the symptoms—the broken road and congested streets—and the cause of the disease—the broken road charging system.
Reform can be a thankless business. Changing how we pay for roads will not be easy and neither will the conversation with the public. But we cannot wait for a crisis before we act on road reform.
Early and meaningful engagement with the community of the type that I have laid out today will ensure that we don't face a funding crisis before action is taken.
It's clear that any inquiry and resultant reform process is likely to take several years at a minimum.
So the sooner we engage with the community through the inquiry stage, the sooner we can begin the reform process.