Australia needs to bite the bullet on road-user charging in the next few years before the disruptive influence of electric vehicles and more fuel-efficient cars blows a hole in government revenue, according to Productivity Commission chairman Peter Harris.

Describing the inability of Australia to embrace road pricing as the “greatest failure of my time in infrastructure”, Mr Harris said the failure of successive governments to sell the idea of paying for a quicker trip home or to work was a key reason for user charging always being left in the “too-hard” basket.

Mr Harris, a long-serving public servant who helped the Hawke Labor government create the national rail freight network in the late 1980s and early 1990s, said the failure to replicate rail-access pricing to roads was mostly from a lack of policy leadership in Canberra.

But he said the rise of electric vehicles, hybrid vehicles and higher fuel-efficiency standards would put more pressure on revenue flowing into government coffers.

“So, in my view, the revenue crisis means we will need another source of road charging in the 2020s, lest all the owners of fossil fuel guzzlers end up subsidising all the hybrid and fully electric vehicles,” Mr Harris will tell the Infrastructure Partnerships Australia annual oration in Melbourne on Thursday night.

Make a mental shift

But Mr Harris, whose term at the Productivity Commission ends in September, said governments would also need to break out of the idea that tolls could only be used for new roads.

“We will need to make that mental shift from paying only for new roads to paying for a mix of older and newer roads and related projects,” he said. “Because the misallocation of resources that will occur if we simply skew our future new road funding towards investments that can be turned into concessions is not at all efficient,” he said.

“To be accepted, even if grudgingly, price has to be about consumers driving suppliers, not the other way around. This is what electricity transmission got so badly wrong.”

The Productivity Commission had tried a number of times to put road-user charging on the political agenda – saying the traditional road funding system was flawed – but politicians had been scared about the political backlash from any proposal to charge mum and dad motorists. At the moment, only a notional part of the fuel excise was seen as a proxy road-user charge for heavy vehicles, Mr Harris said.

A proposal last year to introduce a “carbon tax” on cars to boost fuel efficiency was also shot down quickly by the Turnbull government as soon as it was raised by a department.

Dedicated pilot programs

The Productivity Commission had recommended demand-based road funding which it said, if properly implemented, could eventually replace other taxes such as fuel excise and car registration.

But the commission noted the success of toll roads and user charging had been patchy in Australia so there needed to be dedicated pilot programs in major capital cities that would test behaviour under pricing regimes.

Mr Harris said the best way to win over the public was not to automatically start setting prices for road access, but to establish a structure that aligned the funds raised from road use with the projects to be funded in the future. The involvement of motoring groups in establishing the link between consumers and the projects would also help get it across the line.

“The biggest gains to this reform do not lie in getting more revenue,” Mr Harris said. “That will just be the catalyst. The true public interest objective is a system that selects the right projects, projects where, as in other forms of infrastructure, people have a choice and yet show they are prepared to pay for. We can sell that surely.”

Mr Harris said electric cars should be seen as an opportunity rather than a threat, but action on road pricing was needed before they became mass market.

Infrastructure Partnerships Australia chief executive Adrian Dwyer has called for road charging on electric vehicles before they become mainstream, saying the window of opportunity was fast closing.

“If we act now, we have an opportunity to institute reform at the thin end of the wedge by placing road-user charges on electric vehicles before they become a car dealership mainstay,” Mr Dwyer said.

Extracted from Financial Review.