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Taxes & the Australian transport sector

The paper I co-wrote with Dr. David Prentice on “A Conceptual Framework for the Reform of Taxes Related to Roads and Transport” for Australia’s Future Tax System Review was released today. Comments are welcome.

Update: I have done 12 radio and one TV interviews since yesterday. Obviously the major concerns in the media are traveller privacy issues associated with using telematics –  these are largely irrelevant since telematic devices in vehicles can be constructed to transmit information about bills not about where journeys are undertaken.  Another issue is the view we are proposing a tax hike. We are not.  The proposals are suggestions for replacing inefficient taxes with more user-pays oriented efficient taxes.  Some very ill-informed comments were made here.  And here – if anything under the proposal truckies will pay less. With respect to the fuel excise we do not have strong views. It is a reasonably efficient revenue gainer but very poor at doing the sorts of things we are mainly interested in – internalising congestion and road damage costs.  Revenue neutral user-charge reforms might involve cutting this excise but they might also be directed toward cutting registration and other fixed charges.

Update:  The report has been discussed widely in the print media and on radio.  The single spot of TV coverage was on Channel 7 Sydney’s Today Tonight – the report was a fabrication and a misrepresentation about which I am taking action.  Apart from this our report got fair treatment.  For example:

A bit of fun with Neil Mitchell on 3AW Melbourne.

With Tom Changarathi on Radio Adelaide.

With Meredith Griffiths on AM.

With Michael Smith on 4BC Brisbane.

With Chris Smith of 2GB Sydney.


  • Channel 7 (Melbourne) Today Tonight, August 13 2009
  • 5AA (Adelaide), August 13 2009
  • 6PR (Perth), August 13 2009
  • ABC NewsRadio (Sydney), August 13 2009
  • ABC 666 Canberra (Canberra), August 13 2009
  • ABC North Queensland (Townsville), August 13 2009
  • ABC Darwin (Darwin), August 13 2009

 …  on Monday with Radio National’s Paul Barclay talking about “Road User Pays”.   That is here.

Printed media exposure:

16 comments to Taxes & the Australian transport sector

  • Uncle Milton

    Excellent paper Harry. The best Australian treatment that I’ve seen on the subject. Hopefully the ideas will be picked up in some actual tax reforms.

    And it was very open minded of the Labor Treasury to hire you to do it, seeing how critical you are of the….Rudd Government….. (edited).

  • derrida derider

    Yes, its very good work. I hope the Review panel runs with your ideas.

    I’ve got my reservations about Rudd, but one of his virutes is that he really does prefer expertise to loyalty when seeking advice. IMO Howard’s worst fault in administration (as distinct from policy and ideology) is that he was often incredibly petty about that – if he thought you weren’t “one of us” then you got no contracts.

    However, don’t be too disappointed if many of your ideas take an awful long time to come to pass, because its not mainly the federal Treasury that have to be convinced but the State Premiers. And they’re a whole different ballgame.

  • MAGB

    “Epidemiological studies in the 1990s suggest greater sensitivity of human health to such pollutants than was previously believed. Litman (2003) argues that such pollutants cause as many deaths as motor vehicle accidents although, because these deaths are concentrated among older people, years of life lost are lower.  Litman remarks ‘Automobile emissions continue to be a major pollution source, and reductions in vehicle traffic can provide measurable respiratory health benefits’.”

    In environmental health you can always find publications full of scare stories. This is because many experts take a look at these topics, see no evidence of a serious problem, decide there is nothing worth researching, and go on to other areas they consider important. They then refuse to comment publicly because they don’t read the relevant literature any more. The field is then left to people who are frequently driven by a political interest, and their opinions are never challenged. This is certainly true in the area you are discussing, and also in the topic of health effects of climate change. In my view, Litman is talking complete rubbish – since the introduction of catalytic converters in cars in 1986, urban pollution in Australia has reduced to the extent that there is likely to be absolutely no health effects whatever from transport emissions. Have a look for example at the geographic distribution of asthma prevalence – there is no correlation with population density or traffic at all. In Victoria, rates are higher in rural areas.

  • Craig Rowley

    Hello, it’s been reported that the Nationals Leader, Warren Truss, has condemned the proposal you have submitted. He reportedly said, “The idea of every vehicle in Australia carrying a Government-monitored tracking device to track when and where they are travelling causes very deep concern.” I’m interested to learn of your thoughts on that, and also whether you estimate that many with a similar opinion as that expressed by Mr Truss might change their opinion if rather than the State controlling the telematic technology it were instead a commercial consortium (or similar) that had first paid the State a fair price for the license to apply such telematic technology in certain proven congested zones? Then, what if, rather than a commercial license holder it were a community-based co-operative that was licensed to charge outsiders for travelling through or within their community, would you estimate many people would be more welcoming of that?

  • hc

    I quote Truss’s remarks in the update above. What a clown. Firms operate these devices and one can regulate the information that accrues to the state or the information can be private to the individual. It is a set of nonsense claims. I am sure that my Labor friends – knowing my politics – would have a big laugh at his ridiculous assertion that I am a hand-picked lackey of Ken Henry intent on advancing the socialist agenda of high taxes. LOL.

    Political debates in this country can be ridiculous and one can laugh. One can also cry – blatant stupidity makes serious informed commentary difficult.

  • hc

    MAGB, Your claims that emissions cause no health problems are contradicted by the BITRE 2006 study. I quote:

    “This study estimates that in 2000 motor vehicle-related ambient air pollution accounted for between 900 and 4500 morbidity cases—cardio-vascular and respiratory diseases and bronchitis—and between 900 and 2000 early deaths.
    • The economic cost of morbidity ranges from $0.4 billion to $1.2 billion, while the economic cost of mortality ranges from $1.1 billion to $2.6 billion.
    • The value of a statistical life used was $1.3 million—a discount of 30 per cent on the Bureau’s costing of transport accident fatalities. This reflects the older
    age profile of air pollution-related early deaths”.

    The international literature backs up my claims. I am not expert in this area and I would be very interested if you had other evidence.

  • Craig Rowley

    In your report you state that there is a strong case for moving toward congestion pricing schema in Melbourne and Sydney, and you recommend comprehensive electronic pricing of congested major roads in these cities and cordon price the CBDs. When estimating the strength of the case, what weight did you give to the social impacts of the implementation of such schema?

    I’m also keen to learn: What do you consider the key social impacts to be? And, did you consider issues such as a potential segregating effect (wherein the cost of road trips between dwellings, commercial and other premises in communities on opposite sides of a CBD adversely impacts on social connections between people in those communities)?

  • hc

    That’s an interesting and important issue Craig. In the main we discuss the social impacts of congestion pricing via discussion of (a) equity effects of user charges and (b) the agglomeration benefits of living in large cities.

    (a) The equity effects of user charges can be regressive if the effect of such charges is to favour high-valued journeys by the wealthy and to limit low-valued journeys by those who are less affluent. Generally it is a bad idea to limit the viability of a particular policy measure by looking at its regressiveness – it makes more sense to look at the overall regressivity/progressivity of the tax/transfer system – but if such concerns are relevant then income compensations should be made to low income commuters perhaps by providing tax relief but more plausibly by improving public transport options.

    It is important to understand that fuel excises have a slightly regressive effect as do many current charges when talking about the equity effects of the new proposals.

    (b) The agglomeration benefits of living in large cities are very important. We get many social benefits by being in contact with other people – quite apart from direct economic benefits. Congestion pricing in some respects has good social effects in reducing urban sprawl and in encouraging more compact cities since sprawl partly reflects the underpricing of journeys. In addition there are significant benefits in just reducing congestion and making it easier to get around.

    I am an economist and this might not be a comprehensive enough way of thinking about social benefits but I think these issues are important.

  • Craig Rowley

    Thank you, HC. I’m not an economist; I’m a psychologist and I’ve an interest in the nature of our cities and the life of communities that live within them. I’m very appreciative of your answers to my questions. I’m now keen to better understand the concept of a high or low-valued journey. I assume that the value of a journey is a subjective assessment, i.e. a value personally attributed to each journey by each individual traveler. I’m wondering, have you reduced the criteria by which individuals might attribute value to a journey to just one key criterion (i.e. time = money)?

  • hc

    Craig, Roughly economists value journeys to individuals as the value of their time – often, somewhat arbitrarily, this is set at half their real wage. The idea is that you can do some pleasurable things while4 driving – think and/or listen to CDs, view scenery – hence a fraction of your wage. People on high incomes are assumed to have a high value of time and, with tolling, will travel whenever this value exceeds the toll. Low paid workers will apply the same sort of criterion and hence be ‘tolled-off’ roads more frequently because their wage is lower.

  • Craig Rowley

    Thanks for that reply. I’d have thought that when an individual makes a decision to drive into a CBD the economics of it would be one factor, but other factors would also be considered. One example, which I note can be reduced to a time = money based criterion, is a working parent based in a CBD whom needs to drive his/her vehicle in and out to enable him/her to drop-off and pick-up children in daycare. In this example, the cost per hour of extra daycare would be added to the half real-wage. However, other criteria by which value to the trip may include the value of time with the child, the perceived relative safety of the mode of transport, or a value placed on flexibility/responsiveness (e.g. those emergency pick-up requests that occur whenever a child becomes ill whilst attending daycare).

  • Craig Rowley

    Whoops, that should be: However, other criteria by which value to the trip may be assigned include the value of time with the child, the perceived relative safety of the mode of transport, or a value placed on flexibility/responsiveness (e.g. those emergency pick-up requests that occur whenever a child becomes ill whilst attending daycare).

  • hc

    Craig, What you want is travel to occur when the private benefits (whatever they are based on) of making a trip exceed all of the social costs created (including such things as congestion, road damages and traffic accident costs). Then society derives a benefit from the journey.

    The user charges approach is to try to capture all these costs and to make the traveller aware of them. Then if an individual is rational – they only make a journey if the benefits from doing so exceed the private costs they face – individuals acting in their own self-interesrt should increase society’s benefit.

  • Craig Rowley

    Hello, HC. I’m not certain that it is true that when individuals act in their own self-interest it increases the social benefit. For example, many trips into the CBDs are made by company executives whom travel just a short distance that is otherwise well served by all modes of public transport, taxi cabs, cycle paths, and pedestrian access. Their vehicles sit garaged all day in a car park and then they make the short trip home at the end of the day. There is very low social benefit in these trips. If on the other hand we had lower level, lower income CBD-based workers accessing those parking spaces, then their trips could deliver greater social benefit. For example, a parent able to make trips in and out is probably then able to spend more time with their children. The increased connectedness with children opens potential supervisory and educational benefit, which in turn may foster a smarter, more ‘competitive’ future workforce.

  • […] Penberthy has some strong views on the Henry – Clarke road congestion proposal. It’s surprising that no-one in the Rudd Government has ruled out his […]

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