Sam Warburton assesses the new Government's steps to start pricing road use through fuel taxes

12 November, 2017

I’ve been encouraged by several signals from the new Government around transport. Ministers appear to have given transport much thought in opposition and are, in many ways, ahead of their agencies.

With luck, this will lead to a lift in the performance of transport agencies (which has been lacking recently).

A focus on higher-value projects

James Shaw was first. In an interview with Morning Report, the not-Minister-nor-Associate-Minister-of-Transport said:

We’ve always said, and this shouldn’t come as a surprise to anyone, that we should treat all transport funding dollar-for-dollar, on an even playing field. And you apply the same benefit-cost ratio [threshold] to all projects. And if you did that, you would see a substantial reorganisation of the funding…

While benefit-cost ratios (the benefit generated per dollar spent) have always been one criteria projects are assessed by, they have been the least-important criteria since 2008. The most important criterion has been how well projects align with Government direction.

I previously wrote that ‘we must be concerned when so much of our expenditure is hand-picked by Ministers with an eye to cutting the sod or turning the ribbon while other, much higher-value, projects remain unfunded’.

My preliminary calculations suggest the focus on Government, rather than community, priorities have cost society hundreds of millions of dollars over the past three years in forgone benefits. (This will be elaborated on in a future piece.)

Shaw appears to reject past approaches and shifting towards pursuing more projects that communities and businesses want, rather than politicians.

Higher-value projects including safety improvements

Julie Anne Genter was second. In a story on Stuff, the Associate Minister of Transport said:

Transport safety needs to be a higher priority for the Government…The Minister [Transport Minister Phil Twyford] and I will be working closely on options to improve safety. It will be a high priority for me as Associate Minister of Transport.

This appears to be part of the ‘substantial reorganisation’ Shaw talked about. As I noted two weeks ago, Ministry of Transport analysis showed that:

Many unfunded road safety improvement projects exist. In general, these projects have higher benefit-cost ratios than other projects. This meant that more investment in road safety improvements, funded by deferring other projects, would increase the overall economic and social return of transport investment.

Overall, it seems like a renewed focus on the highest-value projects will drive a greater focus on safety improvements, rather than a knee-jerk reaction to safety concerns driving policy.

An interest in better understanding what communities truly want

Phil Twyford was third. In an interview on The Nation, the Minister of Transport said:

Our view is that the regional fuel tax is a short to medium-term interim measure. Some kind of road pricing or network charging will come in in the medium to long term…

The most important thing about road pricing is that it allows you to do demand management and smooth out some of the peaks, the congestion peaks in the system, allowing you to get much better value out of the transport system.

Again, there’s the talk about getting better value. Not just building more.

And Twyford touches on a vital point.

Value can never be truly demonstrated by just a benefit-cost ratio. Economists and advisors can do business cases and cost-benefit analyses and come up with a best estimate of the benefits and costs of a project, but the true value of a project is determined by whether those who benefit from it are prepared to pay for it.

This was the case of Clifford Bay – a proposal to move the ferry terminal from Picton and save 75 minutes on road trips between Auckland and Christchurch. A cost-benefit analysis put Clifford Bay’s benefit-cost ratio at 1.3 (benefits 30% higher than costs). However, when asked to contribute to the costs, industry baulked – considering the project not worthwhile – and the project collapsed.

Regional fuel taxes and, in future, road pricing help us understand whether transport investments are truly worth it.

Ask a region whether they want more projects in their region, with half the cost paid for by the fuel taxes of people in other regions – the current way we fund most of our transport – and you’ll generally hear a ‘yes’.

Ask a region whether they want more projects in their region but where they must make a greater contribution through a regional fuel tax, and you’ll get a more considered response. People and decision-makers will ask themselves whether they really need that last project or whether there are better uses for that money.

I support regional fuel taxes particularly as a step along the way to road pricing, as Twyford has suggested might be the case.

Twyford said he’s expecting a briefing from his Ministry this month on road pricing. The Ministry has been working on this latest road pricing project since late 2014. Three years is a long time to flesh out options and prepare advice.

In my next Interest piece, I’ll set out the advice the Ministry should be providing Ministers.

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