The Australian Productivity Commission (APC) this week released a report entitled: Shifting the dial – 5 year productivity review. First sent to the Australian Government on 3 August 2017, this report was tabled in the Australian Parliament and publicly released on 24 October 2017.

A copy of the report can be downloaded at: http://www.pc.gov.au/inquiries/completed/productivity-review/report/productivity-review.pdf).

This report is the first of its kind for the Australian Productivity Commission. It examines the factors that are likely to affect the outlook for Australia’s performance over the medium term and makes recommendations to Government on those areas that could be addressed to improve this outlook.

“One aspect of the report that is directly relevant to our industry is the discussion on road funding mechanisms that is presented in Section 4.5”, said ACAPMA CEO Mark McKenzie.

In this section, the Productivity Commission discusses the looming dilemma for Australian Governments in relation to the ability of current road user taxation mechanisms (including fuel excise) to fund the growing demand for investment in the national road network.

The Productivity Commission concludes that current road funding arrangements are unstable, largely because of the improving fuel efficiency of new passenger cars and the increasing market adoption of new technologies in the light vehicle fleet (i.e. hybrid and fully electric vehicles).

The report goes on to make the following specific points:

 Up until now, road-related fees and charges have generated sufficient revenues to meet road spending needs. Looking forward, however, this will not be the case.

 It is projected that road-related revenues will fall in real terms relative to demand for road services (even under conservative assumptions about population growth). In particular, fuel tax revenues (the largest single road-related charge, accounting for about 45 per cent of total road-related charges in 2015-16) have declined and are projected to continue to fall in real terms due to the improved fuel efficiency of cars, changes in travel preferences of commuters, e-commerce and the anticipated shift toward electric vehicles (which use no fuel, or little in the case of hybrids) — all of which reduce average fuel consumption.

 At the same time, automated vehicles and new technologies enabling more convenient ride-sharing are revolutionising transport. Though nascent in Australia, they have the potential to substantially improve overall network efficiency, and individuals’ mobility. However, this greater access is likely to reduce the marginal cost of trips for many people and, in doing so, may induce higher average demand (Schaller 2017), which could increase travel times (even if speeds improve on certain parts of the network). To the extent that newer and automated vehicles are electric (or hybrid electric) powered, an increase in their use will exacerbate funding pressures.

 These trends imply a need to move to a form of funding road expenditure that is responsive to road user demand (rather than simply predictive of it), does not discriminate by vehicle type, and is directly related to actual road usage. The present system displays few of these features.

The report draws attention to the fact that annual road user revenues – 45% of which is fuel excise – are declining in the face of ever increasing demand for government investment in road network improvements.

“This dilemma begs the question about how the Australian Government will respond to the increasing annual shortfall”, said Mark.

On the one hand, the Australian Government could choose to dramatically increase the fuel excise per litre of fuel sold.

“That would be somewhat of a ‘courageous move’ given that fuel excise is already indexed every six months and that the total tax take by the Federal Government – including fuel excise and GST – currently accounts for around 43% of the retail price of petrol in Australia”, said Mark.

Such an approach would also make a mockery of the ever-persistent calls by Federal and State/Politicians for fuel prices to be kept as low as possible, if the primary driver of fuel price increases becomes federal fuel tax increases in the future.

“But there is also an equity issue with this option given that those households who cannot afford to upgrade their cars to the latest fuel-efficient technology will bear an increasing fuel cost while richer households that can afford to purchase an expensive fully electric vehicle will pay no fuel tax whatsoever”, continued Mark.

The alternative involves a progressive transition from fuel excise – a tax on fuel sold – to road user pricing – a tax on road travel.

“This is the recommendation made by the Productivity Commission in its latest report and is one that we believe is worthy of serious discussion now”, said Mark.

ACAPMA welcomes the recommendations of the Productivity Commission Report.

“While now is not necessarily the time to make such a dramatic transition, we believe that now is the time to start a conversation about the future of road user pricing in lieu of fuel taxation”, concluded Mark.