How should we fund the transport system in the future?

According to Te Manatū Waka Ministry of Transport:

“Our RUC system is world-leading in the way it recovers the cost of damage caused by heavy vehicles and the distance travelled by light diesel vehicles, and along with FED it has provided a stable source of revenue with low collection costs … RUC aims to ensure that operators of vehicles that cause the damage pay the appropriate amount. This approach remains key, but the current system does not recognise other costs imposed by vehicle use, such as pollution or congestion.”

Roads will continue to account for most movement of people and freight and are critical infrastructure for New Zealand’s wellbeing and prosperity. The current roading system promotes these objectives and the current revenue system is efficient and simple. So, what’s the problem?

Possible actions

• The current transport system could continue to be paid for by road users through FED and RUC, with contributions to local roads from rates
• New forms of transport that contribute to the ‘public good’ could be funded from general taxation, decided on by politicians
• Waka Kotahi NZTA should be allowed to borrow more using its own balance sheet for roading maintenance and upgrades
• Charge all vehicles that use the roading system including electric vehicles, scooters and bikes

Arguments for

• Debt financing as a way to raise funding is appropriate as future generations will benefit
• The need for well maintained roads and new roads will always be necessary even if there is a shift to electric vehicles
• FED and RUC mean people pay for the distance travelled, and so ensure that those who use the roads more, pay more. Those users have a fair expectation for decent roads. The system is quite simple, efficient and well understood. A more complex system could cost more to administer.
• The externalities associated with private transport – e.g., greenhouse gas emissions and accident costs, are already covered by the Emissions Trading Scheme and ACC

Arguments against

• The arguments for the existing funding mechanisms don’t clearly address fundamental questions like who and what transport investment is for
• The current revenue system could be seen to favour drivers and road users over other forms of transport. This makes it more difficult to encourage people to travel in an environmentally friendly way, and provide them with good alternatives to car-based travel.
• The current revenue system may not meet all the costs of pollution, biodiversity loss, congestion, health impacts
• Retaining the existing revenue system may not meet the challenges of funding the large multi-generational infrastructure projects we could need in future
• If there is more debt financing, there will be costs of paying back that debt – which could mean paying more in FED and RUC.
• The current system is not always equally available and affordable for all groups such as the young, the elderly and those on low incomes

We have to move to a revenue model that drives a shift in how we use transport, one that encourages people to use public transport, rideshare, move to active modes e.g. walking and cycling and more personal uses of technology such as e-scooters. We also need to (re)design our urban centres to encourage the opportunities and infrastructure that allows such a shift in modes to occur.

A shift to an environmentally sustainable transport system based on the principles of equity and fairness, sustainability, safety, health, and access can be achieved by using innovative funding mechanisms that will help motivate the behaviour change required. These funding innovations could include:

• Road pricing including tolls, congestion charges and pay-as-you-drive schemes
• Pollution pricing schemes such as the London low emission zone
• Taxing the increase in property values from infrastructure improvements
• The Government acting as a commercial developer (e.g., Hong Kong) and capturing land value increases from its own transport investment when it owns the land.

Possible actions

• Construction of new roads could be cut-back and those funds transferred to supporting other modes.
• Implement innovative mechanisms such as digital pay-as-you-drive and congestion or pollution charging
• Increase urban density which makes public transport and active forms of transport more viable and attractive

Arguments for

• Reducing car usage and the kilometres travelled will reduce transport emissions
• A move away from cars will significantly reduce the emotional, psychological and economic costs of road deaths and accidents
• Fewer vehicles means less need for maintenance and road improvements and more funding that can be shifted to improving other modes of transport
• Investing in mode shift will have ongoing benefits for future generations, so the funding for them can be spread over time
• A system that encourages us to use transport differently could mean , new business models and innovations help fund the necessary changes

Arguments against

• Many of these revenue raising schemes are either untested or would never meet all the costs of both maintaining and improving the transport system
• Drivers already pay for the use of roads. Charges such as tolls or congestion charging are unfair additional costs
• Externalities such as greenhouse gases are already covered by the Emissions Trading Scheme
• Those on low incomes and people who live in the provinces and rural areas would be unfairly affected because they would not have access to the same kinds of public transport

Thinking about what a future revenue system should look like must take into account the needs of many people including Māori, Pacifica, young people, women, the working poor, rural and provincial communities, and the disabled. We need a revenue system that provides equal opportunities for people to participate in society. Achieving this goal will lead to improved economic, social, employment and health outcomes. It’s important these people have more of a say in how the transport system serves the needs of communities.

Possible Actions

• Prioritise transport system changes that improve the well-being, health, social connectedness, etc of disadvantaged communities
• Provide disadvantaged groups with appropriate opportunities to participate in decision-making and goal setting processes about future transport systems and how this should be funded
• Make sure our analysis for decisions on transport also include social costs, not just economic outcomes.
• If new transport projects mean property values increase, those who benefit should contribute funds to that project

Arguments for

• A just transport system is hugely important to other areas of economic and social policy, including housing, employment, planning, health and education
• A just transport system will be positive economically, culturally, and socially for individuals, whānau and communities
• Greater democratic participation of disadvantaged groups will lead to better town planning, efficient transport outcomes, and improved social cohesion
• The transport system should be shaped by a diverse range of users who need different things

Arguments against

• The way to approach people disadvantaged by the current transport system is to invest more in infrastructure and services so we get both economic growth, better roads, railways, public transport and we can deal with disadvantage. Alternatively, the welfare system may be the best way of reducing disadvantage, for example by providing higher levels of subsidy for lower income people
• A well-functioning transport system should focus on transport and not get caught up in wider social and cultural issues

It is a well-established principle that the private sector is an efficient and effective manager and owner of assets. This is because market mechanisms encourage innovation, risk taking, and entrepreneurship. They also direct resources to where they can be best used to satisfy customer needs and wants. The use of market mechanisms to raise revenue for the transport system would promote the principles of efficiency, fairness, property rights and innovation.

Possible actions

• Allow and encourage roads to be privately owned similarto Sweden and Finland
• Allow the private sector to collect revenue using tolls and other innovative technologies (e.g, GPS technologies)
• Allow more private competition in the provision of public transport, car share initiatives, and personal transport to reduce the tax burden
• Make much greater use of public/private partnerships to inject private sector money and expertise into the transport system

Arguments for

• We trust the market to produce the bulk of our consumer goods and capital equipment. We should do the same for roads and the provision of all transport
• The private sector is inherently good at the continual change, innovation and disruption needed to unleash transport innovation
• The market can cope with the complexities of a transport system because sometimes bureaucracies don’t have all the information a market provides
• Using the private sector would give a stronger connection between cost of infrastructure and the price paid by users or those who benefit. They will make sure costs are covered before going ahead on a project

Arguments against

• The private sector focuses on making profits, not providing excellent service. Uneconomic roads and services would not generate revenue to cover their costs.
• Privatisation costs you more: you pay more as a taxpayer and as a user of the service
• In a privatised service, profits must be paid to shareholders, not reinvested in better services
• You don’t get a democratic voice
• If lots of private companies are involved in delivering a public service, this can create a complicated, fragmented system where it’s not always clear who’s doing what
• Private companies cherry pick the profitable bits of a service so they can make as much money as possible which means some people don’t get the services they need