From The Age web site, Tuesday 3 October 2017

It seems The Age would have its readers assume the authorities have a “plan” to levy congestion charges on motorists. Regrettably, it’s not true; it’s just yet another call from a think-tank suggesting it’s time to introduce congestion charging in Sydney and Melbourne.

This time it’s the Grattan Institute, who yesterday published Stuck in traffic: road congestion in Sydney and Melbourne. There’s a wealth of useful information in this (short) report and it’s essential reading.

It recommends a couple of other key actions, including a call for cheaper off-peak public transport fares, as well as explicitly disparaging staggered school starting times and large-scale road-building programs to “beat congestion”. But the key recommendation is congestion charging:

The Victorian and NSW governments should introduce time-of-day congestion pricing in the most congested central areas of each capital city, charging a low rate at peak periods in return for a freer-flowing road. The cost to drivers should be offset by a discount on vehicle registration, with revenue from the congestion charge earmarked to spending on public transport improvements.

Congestion charging has its critics, who variously point out it’s inequitable, or that it encourages excessive travel, or that congestion isn’t really a problem but rather a sign of success. I want to respond to the first point this time because it’s the one that presents the greatest difficulty for proponents of congestion pricing; I want to revisit some of my earlier discussions of this issue (see Is congestion charging just too unfair to bother with?).

So is congestion charging too inequitable? Here are some points to consider:

First, public policy shouldn’t be made based on evaluating the equity effects of a specific charge or tax in isolation. That’s what happened a few years ago with restoration of indexation of the fuel excise; it led to the ridiculous situation where the Greens and Labor were effectively arguing for a reduction in the real price of petrol (see What’s going on with indexation of the fuel excise?). The sensible approach is to evaluate equity outcomes at the level of the entire tax and transfer system.

Second, travellers already face the same fares for trains, buses and trams irrespective of their income. All consumers already pay the same tariff for other essential services like water and power, again irrespective of their income. There are innumerable government regulations that impose costs on citizens but don’t differentiate by income e.g. speeding fines, passport fees. It’s bizarre that we have a flat charging structure for trains and electricity with concessions for eligible users, yet many oppose charging motorists for the use of road space.

Third, we wouldn’t stand for squandering other scarce resources like power or water, so we shouldn’t tolerate it with road space or parking either. We should apply the same logic to scarce road space as we employ when we price carbon.

Fourth, as with public transport concession fares and the former Gillard government’s carbon tax, financial compensation can be provided for lower income motorists to offset the additional cost of charging. As a guide, note that the Grattan Institute separately calculated the poorest 20% of households could be directly compensated for indexation of the fuel excise if around 10% of the additional revenue raised were returned to them through the tax-transfer system (see What’s going on with indexation of the fuel excise?).

Fifth, congestion charging provides greater horizontal equity; those who cause the congestion pay for it. There are travellers at all income levels who make high-value trips from time to time (e.g. running late for child care pickup) and would appreciate the option of faster travel in uncongested conditions. The equity of congestion charging needs to be compared with the distributional impact of existing and future congestion.

Sixth, travellers who don’t think their intended trip is worth the cost can in many cases shift their journey to off-peak periods when either the charge doesn’t apply or it’s much lower. Infrastructure Victoria says research shows that one in five car trips during the morning peak are not related to work or study.

Seventh, when congestion charging is implemented as a city centre cordon as it is in London and Stockholm and as proposed here by the Grattan Institute, travellers have the option of taking public transport instead of paying the charge. Radial public transport systems, even those in Australian cities, provide very good service to and from, as well as within, the city centre.

Eighth, while it’s harder to design with a cordon system, the charge could be designed to replace existing standing costs like registration and fuel excise. These are not levied proportionally to income at present; nor does the registration fee reflect differences in kilometres of road use. Limiting aggregate revenue to existing streams is now pretty much the standard proposition for road pricing (see Is it time to get serious about road pricing?).

Ninth, net revenue could be applied to improving alternative forms of travel e.g. public transport, cycling. Note that since driving is currently under-priced, the demand for substitute modes following the introduction of congestion charging should be lower than a simple one-for-one.

Tenth, users of road-based public transport like buses and trams would benefit from faster and more reliable travel if congestion is reduced. The city centre is often the slowest part of the trip for on-road public transport.

Finally, as Michael Manville, Assistant Professor of Urban Planning at the UCLA Luskin School of Public Affairs points out, those who worry about harms to the poor when roads are priced, and not when roads are free, may be worried more about the prices than the poor:

Arguing that congestion pricing isn’t fair implicitly assumes that the status quo is fair. But that’s not obvious. It’s easy to think of free roads as a subsidy for the poor, but it’s more accurate to call them a subsidy for the affluent that some poor people are able to enjoy. Driving is expensive: it requires a car, gas, insurance, registration, maintenance, and so on. All of these are easier for the affluent than the poor to afford, and as a result, the affluent drive much more than the poor. This means that the benefits of free roads accrue disproportionately to wealthy people. Free roads function like a matching grant for drivers: the more money people can invest in driving, the more benefit they get from unpriced streets. If, conversely, you can’t afford to drive at all, free roads don’t help you.