Its back in the news with Ken Henry endorsing it at an ANU meeting yesterday and NSW Premier Barry O’Farrell predictably opposing it on the grounds that public transport is not adequate to cope with induced increases in demand rather than the more truthful grounds that he is a lazy hypocrite whose conservatism basically involves doing nothing to enhance economic efficiency that involves even the glimpse of being electorally unappealing. The Henry argument is hidden in here but behind a paywall. Substantively Farrell’s argument misses the point that it is only a small diversion of traffic (say 5%) that is needed to clear roads to optimal congestion levels and that there are numerous substitution options available to commuters – rescheduling, making a phone call, not travelling etc etc. If you are interested in public policy in Australia you need (i) to have a thick hide and (ii) have a high tolerance for listening to repetitive, wrong arguments. I think I possess (i).
Elsewhere there is a proposal to sell off roads and bridges to private firms to fund $700b in infrastructure costs. This is dressed up as a congestion pricing move but it is nothing of the sort – at least without regulation to force pricing at social marginal cost. None of the privatised roads in Australia involve the latter – all are based on cost-recovery ideas that in themselves do not address the congestion inefficiency concerns. The only congestion pricing I am aware of in Australia is pricing access to the Sydney Harbour Bridge which does embody time-of-day pricing in an attempt to smooth traffic demands over the peak. This is a public not a private scheme. As is well known there is a vast difference between the “polluter pays” principle and arguments for efficiently internalising externalities – at least when external costs are an increasing function of the externality.