Everyone can find a problem with our roads if they look hard enough, from pot-holes to construction during rush hour down to congestion due to overcrowding. Then there is the cost of fuel, not to mention road taxes and licencing fees that are all unavoidable costs we must pay if we want to enjoy the privilege of operating a private vehicle. But does it have to be like that? Why are roads funded in such a convoluted way? Why is it we are happy to pay for how much we use of other products (roads are, after all, an economic good) but not for roads?
Roads are largely paid for with the fuel excise tax, where petrol is taxed in the form of an excise from the Federal government which is then redistributed to the States according to the decision made at the Premiers' Conference using various relativities agreed by the Conference such as population and kilometres of road. Then there is 'special funding' for major projects such as highways, where the States have to make their case. Local roads are largely funded by private developers as a condition of approval and then ceded to the local authority for maintenance and management.
As of 2010/11, the fuel excise tax (plus GST) was 38% of the total cost or roughly 50c per litre of petrol at the pump. This is going to increase in the next few years thanks to the carbon tax, to be somewhere in the region of 60c per litre by 2015.
But how much of that is actually hypothecated to roads? A study by Access Economics in the NRMA submission to the 2009/10 Federal budget found that only 25.7% of the fuel excise tax is actually allocated to road funding and maintenance. 25.7%. For a tax that was imposed to "fund road infrastructure", it sure looks like politicians have failed on that front.
The increased reliance on federal funding for roads has created an increasing disconnect between those who use the roads and those who pay for the roads. Federal financing of road infrastructure creates little incentive for recipients of it to innovate, correct mistakes, or respond to changing conditions in how consumers use infrastructure. A better system of road funding would be some form of variable pricing system similar to the one used by utility companies around the world.
Excise taxation veils the true costs of road use to consumers, redirects decision making away from locals towards bureaucrats in Canberra and causes a lot of the problems that politicians love promising to solve with more intervention.
