Road Signals: Who Should Pay for Traffic Decongestion?

Listener 12 July, 2003

Keywords: Environment & Resources;

In a typical year motorists drive 3.6 percent more kilometres (more than the growth of GDP), while the road network hardly increases. It might seem a good thing that we are using our roading capital more intensively. Unfortunately road-use does not follow standard market behaviour, so the ‘good thing’ is also the economic ‘bad’ of increasing congestion. Once that congestion occurred in a few hotspots, in the morning commuter rush hour, and most particularly in Auckland. Today Wellington and Christchurch seem to have congestion for long periods in the day, while many Auckland roads are congested from dawn to dusk (and after in winter).

Congestion costs time but it also costs money. Fonterra’s milk collection in the relatively tranquil countryside is 10 percent slower during the day run than the night run. For while the congestion costs of commuters are most politically prominent, businesses are not faring well either, an effect reinforced by the increasing practice of outsourcing and just-in-time production which means that factories have to be increasingly linked by trucking. (There is some relief in cities from urban passenger transport, while rail relieves the national network, although Tranzrail’s service has been so deficient that even fertilizer has being moved by truck recently.)

An economist sees the congestion problem as one of failed market price signals. Motorists calculate only the direct costs to them of travel, and do not allow for the costs they impose on others, especially the additional delays from the extra car. (That damned driver immediately in front of you: the driver behind thinks the same). The ideal would be road charges based on congestion, but thus far there has been no cheap technical solution. The closest we get to user-pays is petrol taxation, but it is hardly sensitive to whether the road is empty or full.

The lack of good pricing has meant there has been under-invested in roading. In principle any higher motorist payments for congestion are a signal to expand the roading capacity. Instead we have national and local politicians grumbling on behalf of their constituents, while congestion costs rise – it is said – to about a billion dollars a year in Auckland alone, or 1 percent of New Zealand GDP.

In the current policy approach, the logical response would be to raise road taxes and invest the extra in adding to roading capacity (while the higher charges would discourage some motoring). Since that was not done years ago, the congestion from the backlog would take decades to relieve. Instead, the government is proposing to borrow to fund additional road works. Even so, it will take years to make a significant change because of the limited capacity of the road construction industry.

The government can borrow because the public accounts are in such a good state. (I’ve told you before: running surpluses has benefits). At the same time, the road-building will stimulate economic activity as the economy goes into a downturn. There are some tricky accounting/fiscal problems, but the political ones are greater. Roads occur in locations, so who is going to benefit and WHO is going pay to service the borrowing?

The proposal from the Auckland Mayoral Forum is only for borrowing for Auckland roading. But it will be Central Government borrowing and thus underwritten by all New Zealanders. Obviously Auckland motorists would prefer the costs of their motorways to be charged to everyone, rather than having pay themselves. Not only would this be unfair to the other two-thirds of New Zealanders, it is also inefficient because it would discourage businesses and people from locating in areas of lower congestion. We are back to the problem of the ‘Think Big’ major projects where a few benefited but many paid.

There is going to be arm wrestling between the Labour Government and the Auckland mayors, each wanting the kudos from the additional roading but to lumber the other side with the public’s distaste for paying it. My guess is that some of the revenue to service the loans will be raised directly from the area – from local body rates and user charges such as tolls and licenses. The remainder will be raised by a regionally based petrol tax, so that petrol will be more expensive in Auckland than elsewhere. Even so, the various levies will not precisely match congestion costs and some Aucklanders will benefit more than others. Other regions will probably be allowed to extend their roading network on a similar basis of borrowing with the locals paying one way or another to service the loan. (Transmission Gully for Wellington? )

Because there is no simple market solution, there is no simple answer to the problem of roading congestion. But unless the political logjam of who pays is unpicked, the traffic jam will choke the economic and social life of the nation.