Do motorists pay their way?

But policy-makers probably don’t need to raise additional revenue to get an acceptable outcome on key issues such as traffic congestion. They could instead discourage low value or marginal travel by changing the way existing taxes and charges are levied.

The problem with charges like vehicle registration is they’re annual one-off imposts. Once paid, they’re not part of the motorist’s calculation of whether or not to take a particular trip by car.

But if registration fees were instead levied on kilometres of travel, they’d be a more visible component of the cost of a trip. Since the charge could be avoided by not taking the trip – or reduced by chaining it with another trip – it would act as a disincentive to drive.

This is the way the existing 0.39 cents per litre fuel excise works; it increases the price of petrol significantly and hence discourages driving and/or encourages a shift to a more fuel-efficient vehicle.

That’s good because it reduces car travel but its not enough. It does little to reduce traffic congestion because that depends on when and where driving takes place.

If the fuel excise and other fees were also levied with regard to place and time – say at a higher rate per kilometre in the morning peak on busy roads – they could help reduce traffic congestion. It would give motorists an incentive to forego some low-value trips entirely, shift them to a non-congested period, or use an alternative mode like walking, cycling or public transport.

The big political obstacle with anything to do with road pricing is the perception that it’s inequitable. This was perfectly illustrated by the reluctance of the Greens and Labor to endorse the Abbot government’s move to index the fuel excise i.e. not to increase the tax but simply to maintain its real value.

The curious thing is this timidity doesn’t seem to paralyse politicians when it comes to energy pricing. Or when it comes to charging train passengers from outer suburbs a higher fare for longer journeys. There’s every reason to think that even a proposal that merely replaces existing revenue would face formidable political opposition.

As I’ve argued before, policy shouldn’t be designed by assessing the equity effects of specific measures in isolation. The sensible approach is to evaluate equity outcomes at the level of the entire tax and transfer system (see Are equity concerns with congestion charging a deal breaker?).