New competition report tries to go hard on transport reform, but is naive.

The draft of the government’s big competition policy review is out today, and transport reform is one of the biggest priorities.

Roads come in for close scrutiny and harsh words.:

“Roads are the least reformed of all infrastructure sectors, with institutional arrangements around funding and provision remaining much the same as they were 20 years ago.”

The competition policy review is listening to, and amplifying, the right sort of complaints

“Lack of proper road pricing also contributes to urban congestion, which is a growing problem in Australia’s capital cities. With road users facing little incentive to shift demand from peak to off-peak periods, greater road capacity is needed. As IPART notes: ‘During peak periods of demand, roads are allocated through queuing which imposes a far greater cost to road users and the economy than would an effective pricing mechanism.'”

“Lack of proper road pricing distorts choices among transport modes: for example, between roads and
rail in relation to freight and roads and public transport for passenger transport”

Having different subsidies for different types of travel makes as much sense as having different rail gauges across Australia. The point of competition law is to put options on the same footing for consumers (after taking into account market failures). But here, the rail gauge analogy is a good one, because it shows that coordinating what should be an obvious win for efficiency is actually going to be very difficult.

In competition policy, even an ungainly solution like dual-gauge track is not available
In competition policy, an ungainly solution like dual-gauge track is not available.  Photo Source: Wikipedia

The report hangs its hat on transponders. This technical advancement will allow a new era of road-charging, the report argues.

“Technologies are available that allow greater use of cost-reflective pricing, which in turn could be  linked to the provision of road infrastructure. This could make roads more like other sectors, where road authorities charge directly for their use and use the revenues raised for road construction and maintenance.”

But the report is chicken. It deals with the neat, obvious and simple issues of economic efficiency of road pricing. Do you really need a professor and a QC to tell you there are efficiency gains from pricing things in the economy?

What it doesn’t do is try to figure out a way to make road pricing happen. Except for this piece of wanton wobbliness:

“To avoid imposing higher overall charges on road users, there should be a cross-jurisdictional approach to road pricing. Indirect charges and taxes on road users should be reduced as direct pricing is introduced. Revenue implications for different levels of government should be managed by adjusting Commonwealth grants to the States and Territories.”

This is an injudicious turn of phrase. In setting expectations that avoiding imposing higher charges on “road users” should be the goal, it knots its own noose. Obviously, some people need to pay more. The word “overall” is poor choice since some people’s savings in fuel taxes, etc, will be less than their tolls. Perhaps the word “average” (which has a nice clear meaning) should have been deployed instead.

This paragraph is a nod to the idea that the issue needs selling. But as a political strategy goes, it is awfully weak.

The big impediment to road charging is not a lack of understanding of the benefits among those who read wonkish .pdfs. It’s a lack of desire for them . Road charging is actually completely different to the rail gauge problem, because 99 per cent of people couldn’t explain its upside. (Probably they’d mention politicians lining their pockets.)

The terms of reference for this review do not insist that the review panel stick to an economics 101 approach to looking at the issues. The terms of reference actually focus on making change happen:

“The Review Panel should also consider and make recommendations where appropriate, aimed at ensuring Australia’s competition regulation, policy, and regulatory agencies are effective in protecting and facilitating competition, provide incentives for innovation and creativity in business, and meet world’s best practice.”

This report is a welcome reminder that the issue of road pricing is still alive. It underlines that – through a process of elimination – road pricing is becoming one of our most pressing economic reform issues. But road pricing is a long way from having an effective support base, and is a million (untolled) miles away from being widely introduced. This draft report does little to change that.

More on this topic:

Trevors in Traffic: a PR strategy for congestion charging.

Selling the street: A land use hypothetical…

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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