Should new freeways be tolled?
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Average cost of traffic congestion, current and projected (source: BITRE)
The CEO of South Australia’s Department of Planning, Transport and Infrastructure, Mr Rod Hook, is reported to have said the only way the state will get any money from the Federal Government for new freeways is if it imposes a toll on users.
Unlike Sydney, Melbourne and Brisbane, Adelaide doesn’t have any tolled roads (neither does Perth). According to a report in Adelaide Now:
Mr Hook said this week South Australia could no longer to afford to ignore tolls as a funding source for new roads. He said the Federal Government had warned SA it would not pay for future roads unless the state also had private-sector funding through toll roads.
However Federal Transport Minister Anthony Albanese says this simply isn’t true. The Australian says a spokesman for Mr Albanese claimed last week:
Neither the minister nor his department has expressed those alleged views to the South Australian government…..Under our constitutional arrangements, only state governments have the power to impose tolls on roads within their jurisdictions, including on the national highways.
Mr Albanese might say that, but I can understand how Mr Hook gets the impression tolling is a prerequisite for Federal funding. The funding guidelines issued last month by Mr Albanese’s own bureaucrats in Infrastructure Australia suggest otherwise.
They indicate the Australian Government is unlikely to support urban road projects unless they “provide for tolling/charging to recover the costs of the project(s), and send signals that will influence demand”.
The newly released report of The Infrastructure Finance Working Group, chaired by Treasury, supports that view:
Governments should implement targeted measures such as user charges to enhance price signals to better balance supply and demand, and to increase the funding available for infrastructure investment
This seems especially pertinent given Infrastructure Australia has chosen to list the Working Group’s report on its web site under the Guidelines for applications for funding.
Of course Infrastructure Australia has got it right – if we are going to have freeways in the first place (and that’s another debate) then they should be tolled. The Executive Director of the Sydney Business Chamber, Patricia Forsythe, agrees.
She’s reported to have said the O’Farrell Government should have scrapped the former governments M4/M5 cashback scheme, which enables motorists to claim back the cost of tolls. According to Ms Forsythe:
The Cashback Scheme continues to be an incentive for commuters to drive on Sydney’s already congested motorways and is the wrong approach if we are serious about reducing congestion
The argument for tolls is straightforward. They provide the ultimate test for the relevance of a project: are users prepared to pay the full cost of providing and operating the facility? If they are, the project is not only warranted in financial terms (there’s still the tricky issue of negative externalities though) but generates a cash revenue stream.
Indeed, as the Infrastructure finance Working Group is keen to point out, the private sector can fund it instead of state governments who’re reluctant because they’re concerned about tarnishing their credit ratings. Without a private investor it probably won’t get built. And if the estimates are wrong, the private investors are the ones who take a bath.
This is what has happened with a number of privately financed transport projects in Australia. That list includes the Clem7 road tunnel in Brisbane, the Cross City tunnel in Sydney and both the Brisbane and Sydney airport rail services.
Tolling new roads also means state governments can reserve their spending for projects like public transport facilities that don’t usually generate the sorts of returns attractive to the private sector. Another benefit is tolls effectively price road space (albeit imperfectly) and thus moderate demand for both the new facility and related parts of the overall network.
The report of the Infrastructure finance Working Group is interesting in its own right. As well as advocating greater use of user-pays charges, it urges the Federal Government to make infrastructure grants conditional on the states’ implementing initiatives like tolling and asset sales.
It also recommends governments privatise more assets and/or use availability charges. Perhaps that’s not surprising when six out of nine members are drawn from the private sector and work in industries that stand to benefit directly from government investment in infrastructure.
These are important issues worth discussing another time. So is the possibility that tolls should capture the cost of negative externalities.
For the moment though I want to digress a little and mention the Working Group’s contention that transport projects yield high economic benefits:
The dividends economies can gain from infrastructure investment are unequivocal. Analysis undertaken by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) found that current Australian Government investment in Australia’s highways, interstate rail network and urban public transport systems will deliver a return of $2.65 on every $1 now being invested.
This assertion contradicts the finding in the Grattan Institute’s new report, Game changers: economic reform priorities for Australia. As I discussed last week, the Institute analysed Infrastructure Australia’s current project portfolio and estimated the aggregate Benefit Cost Ratio as a much more modest 1.5. That’s a $1.50 return on each $1 invested, or $0.50 net.
The discrepancy might be due to differences in the time frame, the mix of projects, or something else. I looked up the reference the Working Group provided for the BITRE research. Turns out it’s a press release by Anthony Albanese! It mentions “new data” compiled by BITRE but doesn’t even give a reference to it! I do hope the Working Group applied itself a little harder to the rest of the report.
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There is no doubt that tolls should be imposed on freeways. And they should be imposed on any major road project, and probably most minor road projects.
A case in point, the “Sexton Hill deviation” on the Pacific Highway in Tweed Heads. An upgrade of the road has been under consideration since 1995 at least. When discussions started in earnest in about 2004, I was on one of the Community Liaison Groups. We saw the original plans of the RTA, and commented they were bad. For information, Sexton Hill is a ridge over which the Pacific Highway, a four lane dual carriageway, curves. It has 8% gradients one side and 5% the other. And it has a substantial S-bend on the southern slope. Allegedly it has the worst accident record for any section of the Pacific Highway. In early discussion, the new plans showed gradients near 5% each side. We argued for a deep tunnel under the ridge. This could have been about 200 m, depending on the exact location of the portals, but would have reduced the gradients to about 2% or less. The reduced gradients would have meant that trucks would not have needed to change gear, nor would they have had problems maintaining a constant road speed. To no avail.
We were advised that an early set of solutions, including a tunnel, had been put to RTA executive in Sydney. Their ‘hilly’ option was to cost about $110M. Their tunnel version would cost about $130M. It would also have required supervision, and trucks carrying dangerous goods would have been prohibited (they would have used the existing road, as they do now). The executive ruled out a tunnel solution, and no arguments we put forward could change this.
The RTA put up two versions of their ‘hilly’ solution, one effectively rebuilding the existing road, digging out the crest to a lower level, and one using a new road, in a very deep cutting (about 24 m deep). The new road was preferred, on the grounds that it was not as bad as the other, and after many changes it was adopted.
Work is now nearly finished, and the generally accepted figure is the work has cost around $355M – largely put up by the Commonwealth Government – which is perhaps why the RTA was happy with the near trebling of the cost.
We were asked to give a review of the CLG process. Amongst other comments, I made these comments (after suggesting that a proper benefit/cost study should have been done):
“The other is to drop funding from Consolidated Revenue, and fund projects from bond issues backed by toll charges on the project. This is the way that the Gateway Bridge in Brisbane has been financed, the way that motorways and tunnels in Sydney are financed, and is the way all major road projects should be financed. If a project is so costly that it cannot be financed by tolls, then the question must arise, should it be financed at all.”
“Examination of current traffic and likely future traffic growth shows that the Deep Tunnel Option as proposed by the CLG could easily be financed by a reasonable toll. Certainly such would have covered the original difference between the RTA’s cheaper option and the CLG’s tunnel option, even with its costs inflated by the RTA. Probably the entire cost of the project could be covered by a toll, much to the benefit of the State’s finances.”
Now, knowing the final cost, one might add that if the upgrade were to be financed by a bond issue, and tolls to cover the cost of the bonds, it is doubtful that the overrun to near treble the original cost would have been acceptable.
A member of parliament has crowed that through her actions she has brought funding of about $350M to this area for the Sexton Hill upgrade, and another $500M or thereabouts for a road upgrade further south. This is at least $800M on which tolls should be charged, to repay the State of NSW’s costs at least, and preferably to return some of the cost to the Commonwealth.
Railways are supposed to pay their way, but mostly don’t – roads should also be supposed to pay their way, and charging tolls on main roads would help to get nearer to a level playing field.
Those interested may care to view the progress of the works on NearMap – look for “Laura Street, Tweed Heads South ” and move west to the road works.
“The argument for tolls is straightforward. They provide the ultimate test for the relevance of a project: are users prepared to pay the full cost of providing and operating the facility?”
Are the users of the Mandurah railway prepared to pay the full $2 billion cost of building it? When they build our new museum (only half the cost of the new stadium!) should users expect to pay for it/them?
I’m implacably opposed to tolls and hope they never arrive in Perth. We need the roads we need, along with trains, museums etc. Governments will set the taxes and prioritise the projects and face the voters’ disapproval at the election if they don’t suit the electorate. I don’t want to have to face charges for every public service and facility, it’s tiresome and will result in never ending arguments about whether it’s fair etc
Boscombe has something of a point. But if you’re comparing a railway line and a road, the accurate equivalent would be that just as the railway line is partly funded by the ticket price, major freeways should be at least partly funded by usage fees.
It doesn’t make a whole lot of sense to ask if “users [are] prepared to pay the *full* cost of providing and operating the facility” when in reality the economic benefits of large infrastructure projects flow through the whole economy over the scale of multiple decades. It may well be that almost no single major road or rail-line ever built in any developed economy would pass any sort of straighforward profitability test over a 10 or even 20 year period, but the reality is no developed economy can exist without them.
Alan
it is amazing to watch in Brisbane, many avoid a toll road at almost all costs – brisbane now has several, with more to come, and they are working to reduce travel times – but i have sat and timed a queue in peak hour avoiding the Clem Jones tunnel at KP – 15 minutes later the cars moved less than 200 metres – in that time i would have been across town and in my office about 10km away and all for a few dollars
many must not place a high value on their time
cheers and keep these good articles/topics coming
zmichael
Why shouldn’t we toll all metro freeways like we ticket all metro public transport. i.e. an integrated system that reaches a capped toll on all metro freeways. The problem with the current system is we have ended up with nearly every freeway in the west of Melbourne toll free and nearly every one in the east tolled…
New facilities could be built with a mix of tolls collected on the new freeway itself and tolls collected from the whole existing system… Which also reflects the fact that everyone through taxes paid for and benifits from the existing freeways and should also contribute/benifit from the new ones.
The way we are tolling roads now is saying that we want people to drive over the Westgate and on the western ring road but not through the tunnel or on Eastlink? The tolling structure of our citys freeways needs to be more equitable much like the public transport ticketing system is. Some of this revenue could also go to public transport improvements and you could effectively correlate the pricing of each system.
I think its interesting that we often impose costs on people living in the outer suburbs and having to drive to work as we see that as a choice and yet living in inner Melbourne penthouse and catching public transport to work is seen as a sacrifice worthy of subsidy.
“just as the railway line is partly funded by the ticket price, major freeways should be at least partly funded by usage fees” – aren’t we paying tax on petrol? That’s our contribution to their cost.
Agree with Wiz oZ and Austin M – toll ALL the freeways ! Why should they be free ? why not pay a fee just like public transport ?
Indeed in Melb at least, if all freeways were tolled at matching rates, then the current toll for the Tulla and East Link could be greatly lessened, avoiding the avoidance. If the tolls were say 20c per section, capped at $1 / day and $5 / week, then no great impost, but total amount of fees collected from the millions of trips on the south-eastern / monash / ring road etc. could generate lots of cash to pay off the ones already requiring payment, and ultimately go to improving PT in the outer burbs ! Though if it work, then the $ would go no doubt to more freeways.
I support tolling all existing urban freeways. Why stop at freeways? There are congestion problems on other arterial roads too. Why not toll the main arterial roads too?
I think start with the freeways first Tom as there is already a fairly well established structure for how it would work. I personally think arterials would be better done by a GPS based time, road, distance system which still may be a bit of a leap for current adoption.
If we had a capped tolling system on all the metro freeways it may also be worth incorporating a cordon charge (with the same cap) on the CBD into the system to help pick up affluent inner suburb trips and prevent toll avoidance/rat running through the CBD.
The logical cap for a regular vehicle to me would be a cap to match the daily fare of an adult PT ticket (including matching changes in the fare over time). Offering Yearly or Monthly passes that also match the PT ticket could also be of benefit.
You then have a system where atleast the major arteries of our transport system are paying a similar rate for daily use into a direct pool. This pool could then be spent on mostly major transport upgrades with an aim to sustained longterm revenue security for continued system improvement.
The remaining existing government money outside this system should then be reserved for the not so glamorous/economically competitive improvements like outer suburb bus improvements, tram works, fleet upgrades, cyclist provisions, pedestrian facilities, maintenance of existing roads, grade separations and arterial road improvements/upgrades.
Boscombe, the point is that if a proposed new train line could not be expected to have at least some given percentage of the cost of building it covered by the fares of passengers using it over the next 20 years, then it probably shouldn’t be built*. Likewise for proposed freeways. But without tolls there’s no way of determining the “fares” drivers are willing to pay to use that particular road.
* I say probably because it’s not unreasonable to make the case that a particular transport corridor may be especially expensive to provide a route for no matter what means, but could reasonably be estimated to deliver important an overall benefit to the economy in excess of the cost of building it – in such a case it would be sensible to compare the cost of building a railway line minus the likely fares collected by passengers using such a line over a 20 year period to the cost of building/maintenaining a freeway (including externalities where possible) minus the likely tolls collected by drivers using such a freeway. If the estimates for both are similar, then the decision would made on other grounds (e.g. on the grounds of what would get the most votes – which is probably just as good as way to determine it as any. Eventually voters will get lose their love affair with freeways once they can see the advantages of the alternatives).
The benefits quoted for road projects are always suspect.
We have an aversion to recognising the implications of induced travel, which quickly erode any supposed benefits. We also tend to do the economic evaluation ignoring the fact that tolls, when added later to pay for the project, will discourage use and therefore reduce the benefits.
Finally, as the marginal benefits of even more investment decline (as it inevitably must if transport is “good enough”) we start dreaming up new concepts such as agglomeration economies and wider economic benefits to justify projects.
Even worse, I have heard it argued that the extra cost to preserve environmental or societal values (such as for a tunnel instead of a surface road) should also be treated as a benefit, because the higher cost project is not destroying those values – forgetting that not building the project would also not destroy the values!
Finally, tolling freeways doesn’t really make sense as it discourages use of the most efficient and safest roads we have, reducing economic and amenity benefits. More general road pricing is a preferred option as it reduces the spatial distortion that tolling only one class of road introduces.
Wiz Aus – as far as I know the fares don’t even cover the cost of running the trains, let alone contribute to paying off how much they cost to build.
“We have an aversion to recognising the implications of induced travel, which quickly erode any supposed benefits.” That is often said, but not true. If you build another bridge or add new lanes to a freeway you can solve congestion there for years and years, and the benefits of that to the users aren’t “supposed”. Eventually, if you live in a fast growing city, like Perth, of course you have to keep adding more infrastructure – along with more hospitals, universities etc.
9
The system for tolling freeways would be extended to arterial roads. Toll gantries and signs. Simple.
Capping tolling would be counter productive because it would reduce the disincentive to drive especially for those who drive a lot. Capping tolls at a daily pt fare would compound the problem as it would not encourage 2-7 (depending on vehicle size) passenger trips.
11
I agree that tolling only freeways is distorting. However freeways do not use their safety on staying safer but on allowing higher speeds at the same safety. Also as people do not start and finish their travel on freeways, they create heavier traffic on other roads people use to get to the freeways.
http://www.ptua.org.au/myths/safer.shtml
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