Transport funding is an incoherent mess, but here is a solution

Dr Eric Crampton
The Post
18 September, 2023

Transport funding has become an incoherent mess. In August, the Ministry of Transport released the Draft Government Policy Statement on land transport funding. Submissions closed on Friday.

An incoming government should take the opportunity to re-think the entire approach. Fortunately, shelved reforms from the late 1990s provide an excellent starting point for a better system.

Under reasonable principles for managing roading, road users cover the costs of the roads – whether through road-user charges, fuel excise duties, or tolls.

Out of those collected charges, paying for road maintenance should come first. If road users could enjoy a better experience by reduced congestion, subsidise public transport that sufficiently contributes to reducing that congestion. Or, even better, use congestion charging.

Any money left over could fund capital improvements like passing lanes and new highways. Otherwise, if road users wanted more, they would have to be willing to pay more to cover the cost. Betterment levies for properties serviced by new roads could also be part of the mix.

New Zealand’s road funding system once was much cleaner.

But pressure to fund new roading projects resulted in direct Crown cash injections for capital expenditure, and deferred maintenance.

Government Policy Statements (GPS) give the minister a way of influencing funding allocation from the National Land Transport Fund. The Crown provides substantial fund top-ups from general revenues. But changes in government bring expected shifts in priorities from big roading projects to big public transport projects and back again.

Delivering any substantial infrastructure projects on time and on budget, with that kind of uncertainty, gets hard – especially when governments might wish to rush a project to avoid its cancellation by the next government.

The National Land Transport Fund became a bucket for all kinds of transport funding, rather than a fund hypothecated from charges paid by road users to cover the costs of providing and maintaining roads.

The draft GPS now includes six separate priorities. Some of them, like sustainable urban and regional development, and reduced emissions, are wonderful-sounding things, but have little to do with efficiently funding, financing and running a land transport system.

Resilience is now included as a separate objective. But reasonable funding of maintenance and renewals would have provision for dealing with slips, washouts, and necessary strengthening. Having to add it as its own separate objective points to maintenance having become a lower priority.

And it seems odd that a land transport system should seek to reduce the number of travelled kilometres, ostensibly for climate change reasons. But uptake of electric vehicles has been increasing. Transport emissions are covered by the Emissions Trading Scheme in any case. If reductions in kilometres travelled reduce demand for ETS credits, credits are simply freed up for purchase by others instead. It shifts where net emissions happen, rather than the quantity of net emissions.

It all results in a bit of a mess. Government subsidises road users with large capital projects, but funding from road users gets diverted into public transport initiatives. All funding lines are opaque and it’s easy for road users to conclude they are being charged for projects that do not benefit them, regardless of whether that is the case overall. That fuels road user opposition to charges. Six sometimes conflicting priorities add to the incoherence.

The messiness seems inherent to the current system. Ministers’ priorities come first. Those priorities change with changes in governments and changes in coalitions. The preferences of road users who pay duties and charges take a back seat. And Crown cash injections have a hard time delivering value-for-money when priorities whipsaw with every change in government.

A ground-up reconstruction seems in order. Fortunately, a blueprint is already in place.

In 1998, the National government at the time proposed structural reform of the land transport.

Under the Better Transport Better Roads proposal, levies paid by road users would fully fund the roads. Levies could vary by region if different places had different needs.

Regional roading companies, owned by the underlying local councils, would own and operate local roads. State highways would fall under a Crown-owned company.

A separate Crown-owned company would recommend the rates to be charged and could borrow against those charges to fund capital expenditure. Capital expenditure on new roads would depend on road user willingness to pay for them, over time, rather than ministers’ priorities.

The system was designed to encourage discovery.

If a publicly-owned road company found heavy trucks imposed particular burdens on some roads, it could negotiate lower road-use charges for trucking companies agreeing to avoid those roads. And each could learn from each other’s innovations.

Twenty-five years have passed since the Better Transport Better Roads proposal. But the underlying structure seems sound.

If an incoming government found itself frustrated by a messy draft GPS that will have to be amended, it would at least have a starting point for building a better system.

Read in The Post here. 

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