Who can square the cost of cars on community?

The Productivity Commission finds motorists aren't paying their way, and it underestimated the costs. Could GPS location technology be the solution?

Ever since John Howard panicked back in 2001 and removed the indexation of fuel excise in response to a public anger about rising oil prices, the government has lost more and more revenue important to funding the cost imposed by automobiles. 

This has lost $5 billion in revenue that has had to be recovered somewhere else.

The Productivity Commission, in its new report, has rung the bell on the problem that governments are simply not collecting enough revenue from motorists to fund the costs they impose.

According to the government’s transport and infrastructure economics group, BITRE, in 2011-12 total road expenditure by all levels of government and the private sector amounted to $19.5 billion. In comparison, the revenue collected from fuel excise, registration charges, drivers' licence fees, stamp duty and tolls amounted to $18.0 billion.

Of course, this also doesn’t take into account other costs imposed by using our cars, most particularly the impact on the community’s health. The impact of air pollution was estimated by the same government body at about $2.7 billion per annum in the year 2000. You’d need to scale this up considerably to account for passage of time and population plus, most importantly, the fact that this study was narrowly focused, likely missing a range of other costs imposed by pollution’s effect on health.

In addition, there are the costs of car accidents. BITRE estimated that the social cost of road crashes in 2006 was $27.1 billion, as broken down below. Some of these costs are directly recovered from motor vehicle users (for example, vehicle damage costs and insurance) but a large proportion are not.

Breakdown of social costs imposed by motor vehicle accidents in Australia

Source: BITRE (2010)

Then there’s the impact of carbon emissions. In fairness to John Howard he wasn’t the only one to panic with Labor wilting under pressure from the Coalition, removing motor vehicle fuel from coverage under the carbon price.

In spite of my deep concern for climate change the reality is that I find a car vital to my way of life. I’m sure that’s the case for a large proportion of the population who couldn’t imagine life without access to a car. 

But if we don’t pay our way, then it encourages us to be wasteful and to use cars in preference to other activities which may represent better bang for buck. In the end this will mean we’ll pay for these costs some other way – that might be possibly through a future increase to the GST or higher income taxes or a higher Medicare levy or sadly through our health.

And because we use our cars perhaps more than we should, politicians like Tony Abbott fall over themselves to funnel our tax money into new free-of-charge or below-cost roads, exacerbating the problem. Even when detailed cost-benefit analyses and expert advice from bodies such as Infrastructure Australia suggest this money would be better spent elsewhere.

The Productivity Commission points out that GPS location technology has now become so cheap and ubiquitous that we can now far more accurately estimate the costs imposed by each vehicle’s road use. They suggest that such technology should be employed to recover charges from drivers that better reflect the costs they impose.

Interestingly, one of the report authors, Peter Harris, pointed out on ABC radio today something we’ve already noted in Climate Spectator, and that is that petrol use is actually declining in Australia (although diesel fuel use is, unfortunately, increasing).

The distance we drive our cars has stopped growing and, meanwhile, cars are becoming more fuel efficient. This means that the revenue raised by a rate of fuel excise which is frozen in time is not just being eroded by inflation but also through declining fuel sales. 

Will politicians have the guts to confront motorists with higher charges – I doubt it. But as Ken Henry pointed out this week, government and us, as taxpayers, will have to eventually face up to the fact that government is not raising enough revenue to cover costs.

Now we can pay through higher GST, or we could stop subsidising motor vehicles and end up with healthier and more liveable cities.

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