Ranjana Gupta: Mitigating Auckland's traffic woes through tax

Traffic queues on Onewa Rd in Brikenhead, one of numerous pinch-points for regular congestion around Auckland. Photo / Sylvie Whinray, File

Opinion

OPINION

Auckland traffic congestion cannot be ignored as population growth continues to strain the transportation networks, thus reducing productivity.

With this long-standing trend of congestion growth, combined with expectations for continued growth both in population and vehicles on the road, it has become imperative that action is taken to address the transport issues within the Auckland region.

In response, the Land Transport Management (Regional Fuel Tax) Amendment Act was passed in 2018, under which an additional 10 cent per litre RFT is levied on all petrol and diesel sold in the Auckland region (from July 1, 2018 until June 10, 2028).

The study, "The imposition of the Regional Fuel Tax (RFT) in New Zealand and its Advancement" attempted to analyse the reasons why the fuel tax was introduced to understand the impact of its distribution. The regional fuel tax is predominantly designed to raise funds for priority regional projects to achieve a safer, more reliable, and accessible transport system.

These projects included light rail from the Auckland waterfront to Mt Roskill. In the May 2020 Budget, the Government announced the Auckland light rail project would be postponed due to the Covid‑19 crisis. The Government announced in April 2021 that the Auckland light rail project will be back on track from October but the financing options are yet to be considered.

Interestingly, any increase in fuel prices through the RFT would impact Auckland businesses that may be reliant on non-transport fuel users, such as those in the farming, construction, and manufacturing industries. In such cases, tax credits refund or a rebate process have been introduced to allow for claims to be made by the off-road fuel use but the compliance costs of a rebate system for such businesses are high.

Currently, people living in poorer suburbs bear the brunt of the RFT. That's because they
tend to live in areas without easy access to public transport so are more likely to drive more and in cheaper, fuel-inefficient vehicles. Fuel-inefficient vehicles, result in the purchase of more fuel even though they may drive less per km.

Similarly, the purchase of petrol, and road use, will not be correctly reflected in the case of electric/hybrid vehicle drivers and only wealthier people can afford to buy the relatively expensive electric cars.

The Labour Party has acknowledged the regressive nature of the RFT and its disproportionate impact on lower-income groups. However, there are claims that the effects of congestion on low-income households are more severely regressive and cause significant damage to living standards.

With the current RFT scheme, there is also the potential for motorists to purchase fuel outside the region and then drive back into the fuel tax area to avoid the tax while benefiting from transport projects in the region - and the motorists purchasing fuel in the region are subject to the tax being used outside their region.

Covid-19 has upended our daily lives, the way we commute is changing, workers commute into the city at varied start and finish times, companies are allowing employees to work from home at other times but we still continue to pay costs associated with the RFT, despite not contributing to Auckland's congestion at peak times.

SOUTHERN MWY – FINAL UPDATE 9:00AM
The left northbound lane after the Te Irirangi Dr on-ramp on the #SouthernMwy is now open. Continue to expect northbound delays between Drury and Papatoetoe as congestion eases through the area. ^MF pic.twitter.com/uTeNfahlLn

— NZ Transport Agency - Auckland & Northland (@nztaaklnth) April 27, 2021

The design of an RFT based on the social cost of externality (which is the direct impact of rising numbers of cars on the road) would be the right approach and would undoubtedly make a significant difference to our environment.

To mitigate pollution and to encourage the use of public transport, the Government should consider imposing congestion charges or punitive tolls for single-occupancy vehicles which will ensure that the "polluter" will pay the full marginal cost of their actions that affect the environment.

Ranjana Gupta. Photo / Supplied

There is now a range of technical solutions to make such measuring and charging feasible. For example, an enhanced road user charging system that captures information on location, time, type of vehicle, and load could allow for more refined pricing of a broad range of externalities.

The congestion charge would make people seek other options, such as carpooling or using public transport more often for travelling to the city. Public transport quality or availability of decent alternatives for people with financial difficulty to meet their travel needs is vital to significantly influence public acceptance of the congestion charge, as evidenced in successful congestion charge schemes in London and Stockholm.

Further, to ensure that a congestion charge is perceived as fair and equitable, public transport service quality should further be improved by using part of the revenue collected from the congestion charge, which in turn would benefit the poor.

• Dr Ranjana Gupta is a senior taxation lecturer at Auckland University of Technology.