Do motorists pay their way?

I was a panellist on Radio National’s Life Matters program discussing The evolution of the Australian city with Lucy Turnbull from the Greater Sydney Commission and Mark Steinert from Stockland.

A commenter on the ABC’s web site picked up on something (I think) I said about motorists not paying for their use of roads:

“We don’t pay for road usage” – what is vehicle registration and council rates then!

I’ve observed before that the best evidence we’ve got indicates that motorists do in fact pay the full financial cost of building and maintaining the roads they require. They do this via imposts like the fuel excise and registration fees (see Should cars be subsidised?).

But they don’t pay their way in terms of the “external” costs they impose on society, principally lost time due to traffic congestion, but also diminished health from traffic crashes and pollution, and unpaid parking.

Urban public transport users on the other hand only pay around a third of the financial cost of providing the service they receive but score well on minimising the sorts of negative “externalities” that bedevil private vehicles.

The upshot is the financial subsidies paid to public transport users are pretty well equal to the (unpaid) negative externalities imposed on others by motorists. In other words, both modes are subsidised by society – one directly via cash, the other via economic costs – to a similar extent.

Put another way, motorist don’t pay what it would cost to provide enough roads to eliminate or at least significantly reduce congestion.

That would require a huge, never-ending program of construction with attendant problems of social dislocation and environmental damage. And it’s unlikely motorists would in any event be prepared to pay the full cost of construction; note that most new urban toll road proposals now require government subsidy.

Some way of rationing road space is necessary in order to avoid or minimise the social costs of congestion. That might be done randomly (e.g. odd or even number plates) but a far more efficient way is to allocate space on the basis of preparedness to pay.

This is how we manage scarce resources like energy; customers are charged at a higher rate in peak periods. That gives them an incentive to change behaviour e.g. to shift consumption to off-peak periods when there’s already spare generating capacity available. It reduces the pressure to build expensive additional capacity just to meet a relatively short peak period.

Levying a new charge on motorists to account for the social costs they impose would be a difficult political issue in Australian cities given most residents use cars as either a driver or a passenger. Driving is hardly the only activity where costs are imposed on others; the world is awash with externalities.