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How can we make road pricing fair?

Talk to a transport economist for more than a couple of minutes (seconds?) and the issue of road pricing will come up. “If only we could introduce road pricing, all our problems would go away,” says your transport economist. Congestion – gone. Greenhouse gas emissions – significantly reduced. Public transport efficiency – dramatically increased. And so on..

So why is implementing road pricing so difficult and so rare? The most common answer is “politics”, but essentially that’s just a proxy for the concept being considered unacceptable by most of the population. And one of the main reasons why road pricing is so unpopular is that it’s seen as unfair, particularly for poorer people.

In a recent Planetizen post, Canadian transport academic Todd Litman looks further into this assumption that road tolls and other means of pricing are unfair and harm the poor.

A major obstacle to efficient pricing is the common, but often inaccurate assumption, that such fees harm poor people. This is generally wrong, and reinforces automobile dependency (an automobile-oriented transportation system which offers inadequate alternatives to driving and therefore forces people to drive more than optimal), which tends to harm physically, economically and socially disadvantaged people overall.

While it is true that a given fee is regressive (each dollar represents a greater portion of income for a poor than a wealthy person), tolls are generally less regressive than other roadway expansion funding options because poor people drive relatively little on such highways: many poor people are retired or unemployed, lower-income workers often have local jobs that do not require highway commutes, and if they do commute on major travel corridors they are more likely to use alternative modes, or travel off-peak because they often have off-peak work schedules.

If the money raised from road pricing or tolls is spent on improving public transport or active transport, then the progressive nature of the funding is enhanced further:

As a result, road tolls are generally less regressive than financing urban highway expansion by increasing fuel taxes (which all motorists pay, not just urban commuters) or general taxes (which everybody pays regardless of how much they drive), and can be progressive overall if a portion of revenues are used to improve alternative modes, such as public transit, so lower-income travellers have better alternatives to driving.

Similarly, poor people often benefit from parking unbundling (paying directly for parking, rather than having it automatically included with building rents) and cash out (being able to choose cash instead of subsidized parking) because they tend to own fewer cars and value the opportunity for financial savings.

There are a couple of ares where Litman’s analysis doesn’t necessarily hold true for Auckland, particularly in relation to how the current debate about road pricing is happening – as an additional revenue raiser, rather than as a replacement of existing funding sources.

  1. Tolling or road pricing is probably only fairer if it replaces other, unfair, methods of funding transport – such as petrol taxes (which unfairly charge those travelling off-peak for infrastructure only required at peak times) or rates. If tolling or road pricing is just another tax on people to pay for a bloated transport programme then chances are they will be unfair because it will be the poor who end up suffering the most from the extra charges (as those charges will be the greatest proportion of their income).
  2. Auckland currently has a very different relationship between income and mode choice compared to US cities. In most US cities it seems that the poorest areas have the highest levels of public transport use – therefore improving PT using money raised from tolls or road charges has the potential to play a wealth distribution role. As illustrated by the map below – which shows car modeshare for journey to work trips in the 2013 census – Auckland seems to have the opposite patters, with poorer areas often being highly car dependent.

car-modeshareOverall, it seems as though road pricing could be introduced in a way that’s considered “fair” by Aucklanders – and therefore may be able to overcome political opposition. However, this would require a couple of pretty big changes to how it’s currently being proposed by the Council. Firstly, the money raised would need to be used instead of existing funding sources, rather than just being another tax. Secondly, some dramatic improvements in the attractiveness and affordability of alternatives to driving appear necessary to reduce car dependency in Auckland’s poorer areas.

The new bus network and the City Rail Link (which vastly benefit the south and west respectively) may meet the second hurdle. A whole pile of unnecessary roading projects need to be killed off to pass the first hurdle, reduce some of the regressive existing transport funding tools, and therefore make road pricing and tolling actually fair.

36 comments to How can we make road pricing fair?

  • Neil

    Many of the poor drive to work for personal safety reasons. Getting off a bus and walking home in Clendon or Otara can be dangerous, specially for females. Remember it was the union representing cleaners who opposed National’s plans for FBT on use of company car parks in CBD.

    • Vinny

      Another aspect that effects lower paid workers is the ” start work on site” situation we see more of. Where I live we are currently having road works done, all the workers are driving to and parking in the local streets instead of coming to site from a depot. This means more cars on the road as workers are having to carry all tools, safety gear etc and get to locations distant from PT. The number of job adverts now requiring applicants to have own car is another example of this situation.

      • Neil

        Requiring workers to provide their own transport to site is now almost universal. This is a barrier to those who have been unemployed and do not have reliable cars. On the other hand, the cost of land has force construction company depots to remote areas not serviced by PT anyway, and often PT does not start early enough.

    • Feijoa

      Is this more of an irrational fear though, than anything? How many people are killed or attacked reaching public transport vs the number killed or injured on the roads? Obesity and lack of exercise should be factored in the safety comparison too, surely tipping the scales.

      • Neil

        This is not irrational. People are attacked in these areas every week, just not killed. The reason more are not attacked is possibly because they don’t walk at night. When I worked in East Tamaki our female staff always asked to be escorted to their cars when working late.

        • Gary Young

          But if many more people were walking, in the daytime or late at night, then there would probably be fewer assaults on lone walkers because there simply wouldn’t be many lone walkers.

          Walk around the streets of Manchester at 10:30pm back in the 1980′s and, yes, you may well have been accosted. In the streets of Paris or Lisbon or Lyon very unlikely, because at that hour there were hundreds of people strolling, socialising, sitting at cafes.

          • Neil

            South Auckland is suburbs of family homes. Children need to be in bed before 10.30pm and many of the parents also as they have to start work at 7.00am. When I was driving through northern London in 1987 I was surprised how empty the streets were.

  • mfwic

    Road pricing would immediately be fair if the money collected was all tipped into public transport alternatives. Then people of all income levels would have a viable choice to driving. Unfortunately road pricing in Auckland is always poisoned by the road building lobby who immediately put their hand up each time it is raised as an option. Nobody minds a tax is they can see it being spent on something that is of benefit to them. Ideally the money raised in each corridor would be ring fenced for improvements to PT and limited road improvements within that same corridor.

    Perhaps if we cant do that then simply using toll lanes would be politically acceptable. If you are late for work or an appointment you could pay the toll. If you are early that day you wouldn’t bother.

  • obi

    Another reason to oppose road pricing: If you want to do this for all roads, rather than just motorways, then you need to track people’s movements. I suppose you could try and implement some sort of anonymous pre-paid payment method, but there would have to be some sort of compliance method that ties vehicles to accounts. So every vehicle has a GPS and is sending back its movements to the government (or the council) to allow them to calculate their toll? I can’t see many people being happy with this.

    • I dont think you need to track people’s movement, which sounds quite sinister.

      It would just be like in Stockholm or on the Northern Motorway where gantries are set up with cameras that recognise registration plates. The system then sends a bill. In Stockholm the fee is a moving target depending on the time and how full the roads are.

      In Stockholm before implementation 75% of people said they didnt want it and then after one year 75% wanted to keep it. It really seems to be the way to go.

      • obi

        Fixed cameras are only going to capture a small proportion of travel. To me, pricing doesn’t make much sense unless you’re measuring usage of all roads. Otherwise you aren’t pricing roads, but tolling a few specific roads and I think they’re different things.

    • Feijoa

      Mobile phones already do a much better job of tracking, since they follow you even outside the car and also record all of your conversations. Hop cards track all your journies too. This hasn’t prevented the uptake of either. Cars have number plates and there are now traffic cameras all over the city, so if they want to track you then track you they can.

      • obi

        I think I saw a reference to tracking mobile phones in all the Snowden leaks. It was in the context of governments tracking people that way, and also forming a graph of the people you know by tracking anyone that you came in contact with, ad infinitum. From an IT point of view, some of this technology is really impressive. However, it justifiably worries people and I suspect that people will move to close some of this stuff down. Some of the cloud service providers report that the number of users opting to encrypt sessions has just exploded over the last few months.

        Which means people are concerned. I don’t see politicians are going to propose new technologies that could be used to spy on people. They might implement them secretly if they think they can get away with it, but people are going to notice a national vehicle tracking and pricing system.

    • DavidO

      Interestingly a lot of the earliest academic literature about ‘the emerging surveillance society’ saw road pricing, tolls, and transport ticketing systems as among the most sinister developments. Of course mobile phones now make that seem a rather naive perspective…

  • Steve D

    The other big problem with road pricing is that it’s making a gigantic value judgement. Road pricing assumes that eliminating congestion is a value above anything else. Every trip must either pay enough to get uncongested roads, or is totally forbidden.

    I don’t think this really fits with most people’s values. People take huge detours to avoid toll roads, and sit in traffic for ages to get minor discounts from shops, or a slightly closer parking space. Could it be that, while people don’t like congestion, prefer congestion to handing over money or staying at home?

    There’s two ways that road pricing can “eliminate congestion”. By generating funds to build more roads, or by making it too expensive for poor people to drive. Let’s make some reasonable assumptions. What if most people strongly value being able to make trips, but puts only minimal value on saving a few minutes off the trip? So road pricing makes everyone worse off – people who are still driving are paying lots more for a service they didn’t much want (time savings), because it comes bundled with the service they do want (making the trip at all). Meanwhile, people who are priced off driving have lost whatever value they would have got from that trip.

    Road pricing advocates love to phrase it as “wouldn’t you love to pay $20/day [or whatever] to be able to drive without getting stuck in traffic”? Well, no. But you’re not giving me that choice – you’re saying I’ve got to pay to “eliminate congestion”, or I can’t drive at all. It’s adding a choice, while eliminating a choice most people probably value more.

    • Steve D

      Footnote: This is only about the idea that road pricing is a good thing because it will “eliminate congestion”. Obviously, if the goal of road pricing is to raise funds (for PT, or general revenue), or to pay off a specific toll road project, that’s a separate issue.

  • Greg N

    You also had Local Government NZ on the TV last night talking about how alternatives to local body funding by using mainly rates despaately need to be considered as the current rating system has really reached the end of its tether.

    The argument against any changes from those who want the Status Quo preserved are that “rates are so much simpler to collect than any alternative methods”.
    (as if thats the **only** criteria that matters – its one criteria, but not the only or even most important one).

    LGNZ are saying the Government needs to rethink this area and come up with some changes.

    So, if LGNZ are right now saying to the Government that “enough is enough” on Rates, then lets also talk road pricing as after all these two are linked implicitly if not joined at the hip.

    And one thing is clear, its not a case of adding yet another tax on top of the existing ones, it needs to be a sea change of how revenue is collected and shared between Central Government and Local Governments.

    • Steve D

      Much of the value of property (at least, of the land) comes from the government’s and council’s actions. Building roads and sewers and water mains, schools and parks and UFB and a thousand other things.

      One of the best things about rates is that it does at least capture a bit of the windfall capital gain that comes with beneficial government projects. If the council’s building, say, a $2.4 billion heavy rail tunnel that makes your land’s value go up 20% without you lifting a finger, the very least we can do is charge you 20% more in rates.

      I’d rather see more government and council expenditure funded through targeted and general rates, not less. Not to mention a Capital Gains Tax, which is a species of the same principle: with CGT you’re paying a lump-sum present value, with rates you’re effectively paying the CGT value as a perpetuity.

      • Neil

        The other good thing about land is that it doesn’t move. This makes debt collection easy. A council can request payment of overdue rates from the mortgage institution.

      • Greg N

        Those may be valid, but are the still all appropriate in the 21st century when the value of the buildings on the land and the land itself may have quite distinct values.

        Council charges rates on land value – this is why carparks can stlll be built in the 21st century in Auckland CBD.

        Capturing uplift in property values is something that councils have become less able to do for all sorts of reasons.
        [Recall how developer levies and what they are used for by councils are going to be cut back under legislation in the house right now].

        CGT is one way of capturing this uplift, but I didn’t say CGT was the answer (or the only or even best answer).

        • Steve D

          In a competitive building market the building’s value should reflect the replacement value of the building. Uplift is pretty much always reflected in land value alone. For the purpose of betterment levies and CGT, the distinction’s irrelevant. It does matter a bit for rates.

          I didn’t watch LGNZ on TV, but Len Brown had suggested having a local income tax. Which is a bad idea, both because it doesn’t address the uplift issue, and because of some of the issues Eric Crampton raises about jurisdictional flight.

          Rates are also our only form of wealth tax, rather than taxing income or consumption. If you own a million dollar house, you’re really wealthy, even if you don’t have much income. Should you be able to get away with paying very little tax? For people concerned with equality, it should be particularly concerning – large, untaxed private wealth that gets handed down from generation to generation.

          Obviously, any move away from rates is going to require a law change. AFAIK, neither main party supports a local income tax or congestion charges. National wants to limit development fees and make them up with general rates, and Labour wants a CGT (for central government revenue). Neither, luckily, wants to make a massive move away from rates.

          > the current rating system has really reached the end of its tether.

          Utter nonsense. The current system is fairer than most of the alternatives that have been seriously proposed, and it’s about as effective and efficient as any tax system will ever be.

          • Greg N

            Well Steve if you think Rates have a future go talk to LGNZ – they’re the ones demanding change.

          • Steve D

            Have you got a link to what they said? As I say, I didn’t see it on TV.

            But also, LGNZ can’t “demand” the time of day. The government sets policy, and Parliament makes the law. Neither National nor Labour want to move away from rates.

          • Greg N

            LGNZ is like the Law Society and similar other groups – well respected by Governments on both sides (unlike say Fed Farmer sof Business Roundtable type orgs. which only National seems to bow before).

            Regardless these bodies like Law Soc and LGNZ are often very conservative so to say the things that need to be said about rates. Then LGNZ must be worried.
            I quote from the story below:
            ‘ “The issue we’re coming smack up against in New Zealand is that rates as a way of collecting revenue has seen the value in them largely been lost”, LGNZ President Lawrence Yule says.’

            As for “demanding” change, yes they can demand change – but politicians will do as they will and no doubt ignore it (for a while) as the problem mounts.

            Anyway, on TVNZ website, is the news item:

            http://tvnz.co.nz/national-news/review-find-more-cash-struggling-councils-5868189

          • Steve D

            LGNZ represents the interests of councils, who are driven by the interests of the people who vote in local elections. Who are mostly older, and property owners – direct ratepayers. It’s natural for them to oppose rates increases. Homeowners focus on rates because they are very visible. Landlords engage in a sort of double-think where they pretend that they themselves cover the whole cost of rates, while still using rates as a justification to hike rents.

            But there’s some tension – LGNZ also represents the interests of councillors themselves, who naturally want to empire-build. LGNZ is in favour of a bigger role for councils, and higher budgets. Look at Auckland Council putting health and education-related goals in the Auckland Plan, despite those being completely central government responsibilities.

            That expanding scope and duplication is not something that necessarily has very wide support amongst the public generally. But it makes perfect sense for LGNZ to support new sources of council revenue, especially if, like with income tax, or sales tax/GST, or congestion charges, they can take over an existing central government responsibility.

            “The issue we’re coming smack up against in New Zealand is that rates as a way of collecting revenue has seen the value in them largely been lost”, LGNZ President Lawrence Yule says.

            What a meaningless statement. There’s no problem with rates, it’s just something they are politically opposed to. Rates remain an effective and relatively fair way for paying for council expenditure, which is (and should be) mostly on local public goods, like parks and streets and sewers and libraries and pools and public transport. Public goods whose value, incidentally, is capitalised into the prices of those properties that get rated.

            Central government is obviously biased towards property owners, as well, but not to the same degree as local councils are. It’s going to be a hard sell to get a left-wing government to move costs onto lower-income and asset-poor people, and it’s going to be a hard sell to get a right-wing government to increase revenue for councils at all.

            It’s also going to be a hard sell to get any government to give up much more responsibility to councils, which are in my opinion, worse run and less democratic than the central government. (Perhaps not the specific current central government, although even then I’d rather the current National government was making decisions about Auckland than a hypothetical John Banks/C&R-led council).

        • conan

          “Council charges rates on land value – this is why carparks can stlll be built in the 21st century in Auckland CBD.”

          No they don’t, they charge rates on capital value, at least in Auckland.

          http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/ratesvaluations/aboutrates/Pages/ratesfor20132014.aspx#calcuations

          1. Capital value: The assessment of the most likely selling price had the property (including building/s and all other improvements on the land but excluding chattels) been sold on 1 July 2014.

          • Greg N

            Yeah, most councils charge CV based rates? Yeah right – most still charge the rates on the unimproved value of the land.

            Auckland City Council used a mixture of CV and RV where RV was how much you could get for your house annually if you rented it and CV “rate” was 5% of the current CV.

            They used the higher of the two for setting rates.

            But anyway rates particularly when being used to fund 50% of local roads is pretty much out of touch with the way things work these days in user pays society where you use and you pays (and pays even when you don’t use).

  • I’d be a fan of congestion taxes if it was only in effect at certain times – I shouldn’t have to pay congestion taxes if I can’t physically get a bus home after 11pm, nor should I be stung driving to work at 530am.

  • The biggest issue will be drivers being tolled for roads they have already paid for.

    It will be a difficult task what ever approach you take to try and convince them.

  • Ari

    I think the toll is more of a maintenance fee for the whole network. Sure we paid for the road already, but it needs to be maintained and investing into PT is an indirect way of reducing wear and tear on the roads and increasing the capacity of the whole transport network.

  • Mark

    I worked in Central London when the congestion charge was brought in and three major things happened in the short term. 1) parking on the edge of the Zone Doubled in price overnight, 2) People tried to use public transport – and the system could not cope (again in the short term) and thirdly (and most importantly) the cost of doing buisness with the companies in that zone when up due to the increased overhead for parking and the salary increases they had to pay to get employess into Central London. Companies passed the cost on.

    In the case of the third point, we all pay anyway,For example take a law firm, they increase there charges (to cover the congestion charge) to advise a food retailer, the food retailer increases is food cost to cover the lawyers cost and the public pay more for the food….. The same applies to Banks, Accountants, etc….

    I apprecaite this is very simplistic view but this is what will happen….it is all one big roundabout.

  • Riccardo

    But Mark, not sure really what the problem is. The market is the market. The law firm on balance did not wish to relocate, but paid (via it customers) its share. Public transport in London has improved, not just because of new funding, but because of the principle of it, no longer the poor cousin but an integral part of London. It is just the market sorting out who REALLY wants to drive in Central London versus who just does because they can.

    Auckland is the same, though public transport needs to improve eg CRL.

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