Mingyue Sheng and Basil Sharp: Fuel taxes not best congestion fix

Opinion

Congestion pricing, not fuel tax, holds the best promise of easing Auckland's traffic woes and future-proofing road funding.

Every day, Auckland commuters have to deal with time-and-money-sucking traffic congestion and, for many routes, a lack of viable transport alternatives. The shape of the problem is familiar: we have more cars per head of population than many OECD economies; Auckland's congestion cost estimates run into the millions every year; investment in infrastructure has fallen woefully behind growth.

There has been progress: public transport services have improved, uptake by commuters is rising. But the current focus on fuel tax is wrong-headed and will hurt consumers and the economy.

Auckland drivers face a double-whammy: a 10c per litre Auckland regional fuel tax that could take effect in July, and a proposed 9-12c increase in the existing Government fuel excise.

If we look at how roads are currently funded, we begin to see why this will miss its target.

Central Government collects revenue from a countrywide fuel tax that contributes to the national road networks. Ratepayers contribute to the development and maintenance of local roads. Those travelling by public transport pay a fraction of the total cost of that service - ratepayers contribute too, even if they don't use public transport.

This means that, ironically, transport infrastructure is one of the few government services where there is an extremely weak connection between user pays and service. Many Auckland residents pay the fuel tax and don't use the national network.

Those using the local network see little connection between the rates they pay and the quality of the particular roads they drive. Transparency is lacking and there is a serious misalignment between who pays for the roads and who uses them.

Now if the extra money from the regional fuel tax was used to fund light rail to Westgate and to the airport, then commuters on those routes would benefit from the switch to public transport, but the cost would be shouldered by everyone who buys fuel in Auckland.

This would hurt lower-income households more because fuel taxes are regressive – fuel accounts for a bigger portion of lower-income households' pay compared with better-off households.

An extra 22c a litre will change driving behaviour – remember the price hikes in the early 2000s? Some people may switch to public transport, but most will continue to use their cars. Auckland households should also expect a share of the extra cost to businesses to be included in the price of numerous goods and services transported to retail outlets.

This will put even more pressure on the lower-income families - a double whammy.

In the long run, modelling predicts higher petrol prices will encourage the use of more fuel-efficient cars and a switch to hybrid/electric vehicles, rather than a wholesale shift to public transport. This means inevitably revenues from fuel taxes will decline. How will infrastructure be funded then?

Congestion pricing offers at least part of the solution to both congestion and this looming funding gap. The technology now exists to charge users per kilometre travelled, time of travel and location, and to vary charges across the day and week to flatten out traffic peaks.

Not only would this be more persuasive in changing behaviour, it would allow for better alignment of infrastructure assets with use.

Raising fuel tax will not solve Auckland's congestion. Transport policy needs to step into the digital age.

• Mingyue Sheng is a Research Fellow at the Energy Centre and • Basil Sharp is a Professor of Energy and Resource Economics at the University of Auckland.