Australia's current model of funding road infrastructure through fuel excise, registration fees and licenses is no longer sufficient due to declining fuel excise revenue and an infrastructure funding backlog of $770 billion. Road pricing, where drivers pay directly based on road usage, has been proposed as a more sustainable alternative that links funding directly to road delivery and removes inequities. However, implementing a new road pricing system faces barriers including gaining community acceptance, addressing privacy and reliability concerns, and achieving political alignment across levels of government. Overseas examples provide lessons for potential first generation road pricing models in Australia.

1. Australia’s current model for funding the construction, maintenance and operation of road infrastructure is
reaching breaking point. The model, which is largely based on collecting revenue from petrol excise, vehicle
registrations and licence fees, no longer generates sufficient revenue to meet our current expenditure
requirements let alone address the estimated $770 billion infrastructure backlog. The consequence is the
capacity of our road networks is not keeping pace with the growth of our cities. More practical discussion
is needed that looks at the problems arising from the current road-funding model including how revenue is
collected, as well as broader issues of fairness and equity. The pressures facing governments are mounting
and will be compounded with advancements in technology in cars. The need for this debate is pressing.
ROAD PRICING
IN AUSTRALIA:
TURNING THEORY INTO PRACTICE
Current congestion levels in Sydney,
Melbourne and Brisbane now rival those
of the largest cities in North America
and Europe. With massive population
growth forecasted over the next
35 years, congestion will increasingly
impact the liveability, productivity
and competitiveness of our cities.
At a time when we should be developing
and building resilience into our transport
networks to futureproof our roads, we
are bound to a century-old funding
model, that is not only unsustainable,
but is also inequitable.
Revenue from fuel excise is in decline as
we move to more fuel-efficient cars.
To counter this drop in revenue, the state
governments which are responsible for
the roads have increased the cost of
vehicle registrations and licence fees.
Additional funds are also sought from
other sources. While not directly
traceable, these sources are likely to
include GST distributions, council rates
and land stamp duty, suggesting
non-drivers subsidise those who drive.
With all three levels of government
involved in the collection of revenue
and/or the delivery of roads, the system
is complex and opaque with road users
largely unaware of the contribution they
make to fund the roads they drive on.
This means Australians are unlikely to
appreciate the inherent inequities of the
current system and the growing need
for a solution.
While reform may take many years,
we must begin the conversation now
and start taking practical steps in the
right direction.
The funding gap
In 2012-13, spending by governments and
the private sector on roads outstripped
revenues from road-related taxes, charges
and tolls by approximately $6.6 billion.
The shortfall has been on the rise since
2005-061
.
Half of public road budgets are spent on
the maintenance and renewal of existing
roads2
, suggesting the current funding
shortfall is being driven equally by
maintenance of the existing road network
and projects that are expanding the
footprint of the network. Increasing the
number of new projects would stretch the
current funding model further.
Expenditure
Revenue$0 B
$5 B
$10 B
$15 B
$20 B
$25 B
$30 B
98-9999-0000-0101-0202-0303-0404-0505-0606-0707-0808-0909-1010-1111-1212-13
1. Bureau of Infrastructure, Transport and Regional Economics, Australian Infrastructure
Statistics Yearbook
2. Infrastructure Partnerships Australia, Road Maintenance: Options for Reform,
September 2011, p. 7
TUCC003_160315

2. 2
Fuel excise is failing on several fronts
While the amount of fuel excise a driver pays will be a function of how much they drive, it is an
indirect and inherently unfair relationship. As older vehicles generally consume more fuel,
drivers who can only afford older vehicles will pay more excise per kilometre than those who
can buy newer, more fuel efficient cars.
VEHICLE FUEL ECONOMY ANNUAL FUEL EXCISE3
2004 Holden Commodore Executive VY II 11.3l/100km $663
2014 Toyota Corolla Ascent MultiDrive S-CVT 6.6l/100km $387
2014 BMW i3 BEV 0.0l/100km $0
3 $0.386 per litre / 15,200 average annual kms
Fuel excise is presently charged at $0.386 per litre. As vehicles are becoming
more fuel efficient, the amount that drivers are contributing to funding roads
on a per kilometre basis is falling. To counteract this, annual charges, like
vehicle registration, are increasing and creating inequities for those vehicle
owners who drive infrequently.
The alternative—
road pricing
Road pricing or user pays has been
presented by many experts and policy
makers as the most likely solution to
address the shortfalls of the current
system. Through this approach drivers
pay directly, through a usage charge,
for their share of the cost of building,
maintaining, and operating the roads
they drive on.
Road pricing provides a direct link
between the entity responsible for
delivering roads and where the funding
comes from. It also removes the
inequitable subsidy from non-drivers to
drivers. Developed to its full potential, a
road price could also target congestion
on roads or include coordinated pricing
with other modes of transport, such
as public transport.
Advancement in technology has made
the implementation of road-pricing
systems feasible. In particular, the growing
availability and falling costs of mobile data,
machine-to-machine communication and
GPS-enabled devices have created the
possibility of replacing inequitable and
inefficient proxies for consumption, such
as fuel excise and vehicle registration, with
actual consumption.
Today, there are a number of road pricing
models being trialled or in use overseas.
The design of these solutions is unique to
each region, fitting their particular social,
economic and political landscape.
However, despite extensive research,
road pricing in Australia has remained
theoretical. But as the challenges of
funding shortfalls, traffic congestion and
social perception of pricing inequity grow,
so will the impetus for change.
“Road pricing
provides a direct
link between the
entity delivering
the roads and
where the funding
comes from.”
$0
$50
$100
$150
$200
$250
$300
$350
97-9898-9999-0000-0101-0202-0303-0404-0505-0606-0707-0808-0909-1010-1111-1212-13
$0.0
$0.01
$0.02
$0.03
$0.04
$0.05
97-9898-9999-0000-0101-0202-0303-0404-0505-0606-0707-0808-0909-1010-1111-1212-13
Registration $ per vehicle Excise per kilometre

3. 3
Barriers and solutions
Implementing a new road-pricing system
in Australia is no small task and
realistically would take years to realise,
particularly given the varying needs of
a broad range of stakeholders including,
most importantly, the community.
However, reforming the current system
is not insurmountable; and solutions for
the complexities can be found.
Community acceptance
Community acceptance is critical to the
implementation of any major reform.
Independent research commissioned by
Transurban indicated that 98 per cent of
respondents were concerned about traffic
congestion and ranked this issue to be
their second highest priority behind the
quality and cost of health care.
Interestingly, the research also showed
that twice as many Australians favoured a
user pay system for funding road
infrastructure over a flat-fee arrangement.
Despite this, there are significant
threshold issues that a first-generation
Advocating for road pricing
Road pricing models have been advocated for repeatedly in government-endorsed reviews.
“Importantly, greater use of cost-
reflective pricing linked to road
provision holds the prospect of
both more efficient use of road
infrastructure as well as more efficient
investment based on clearly identified
demands… Reform of road pricing and
provision should be a priority.” 3
—Harper Review
Draft Report 2014
“The Australian Government should
actively encourage State and Territory
Governments to undertake pilot studies
on how vehicle telematics could be
used for distance and location charging
of cars and other light vehicles…The
pilot studies should be designed to
inform future consideration of a shift to
direct road user charging for cars and
other light vehicles, with the revenue
hypothecated to roads.”4
—Productivity Commission
Public Infrastructure Inquiry
Report 2014
“Governments should analyse the
potential network-wide benefits and
costs of introducing variable congestion
pricing… Beyond that, new technologies
may further enable wider application of
road pricing.” 5
—Henry Review
Final Report 2009
3. Harper Review, Competition Policy Review Draft
Report, September 2014, pp. 135-136.
4. Productivity Commission, Public Infrastructure—
Productivity Commission Inquiry Report No. 71,
May 2014, p. 43
5. Henry Review, Australia’s future tax system—
Report to the Treasurer, December 2009, p. 92
road-pricing system will need to satisfy to
win the support of road users, including:
Transparency—prices need to be
easily understood by all road users,
as does the hypothecation of funding
to transport infrastructure
Privacy concerns—technology and
data usage must comply with both
privacy laws and user expectations
System reliability—technology and
billing systems must work reliably
and have in-built error protection
Fairness—disadvantaged groups must
be protected and choice/flexibility
provided to users, and
Tangible benefits—individuals and
the community must be shown the
advantages of road pricing over the
existing model.
The groups of individuals, particularly
vulnerable groups, that will be impacted
by a new road-pricing regime must be
identified and consulted with, so
proportionate protections and policy
settings can be developed. For instance,
governments could include targeted
wealth transfers or, while less desirable,
cross-subsidies. An evolving road-pricing
system will flexibly recalibrate these
measures to address any new
inequities or social objectives that arise in
the future.
Similarly, the level of service (i.e. quality
of road and travel times) that road users,
voters and taxpayers expect the road
network to deliver also needs to be
identified. This will ensure investment and
pricing decisions will promote the
achievement of defined objectives.
Raising awareness about the issues
inherent in the current road-funding
system is vital to educating the
community and increasing the
acceptability of road pricing as well as
improving the quality of discussion about
the objectives and design of a new
regime. In addition, undertaking a pilot
program that tests technology and pricing
options in real-world conditions would go
far in identifying the simplicity, privacy
and reliability requirements of users.

4. 4
Overseas road-pricing models
REGION PROBLEM DETAIL OUTCOME
Singapore Managing
congestion
First implemented in 1975 drivers
were charged a flat rate for entering a
zone. This has evolved to an electronic
flat-rate system. Dynamic pricing is
currently being examined.
Shown to reduce traffic congestion
and increase public transport usage.
Raises US $50 M per annum.6
London and
Stockholm
Managing
congestion
in the CBD
First implemented in 2003 (London) and
2007 (Stockholm), drivers are charged
for entering a zone.
In the case of Stockholm, traffic reduction
has increased over time, as greater
numbers shift to public transport.7
Revenue
generated goes towards the construction of
new roads.8
At present, London uses the revenue raised
for investment in the broader transport
network, including public transport.9
Virginia, USA Funding road
infrastructure
and managing
congestion
In a Public Private Partnership between
the Virginia Department of Transport and
Transurban, high-occupancy/toll lanes
were added to the I-495 and I-95.
The tolls on these new lanes are
dynamically priced. That is, the lanes
recover the cost of construction, but
also vary, depending on traffic levels,
to ensure traffic flows freely.
Europe Road funding Various European countries have
implemented road pricing systems that
charge heavy vehicles on a usage and
mass basis.
These systems were initially implemented
to address vehicles paying for fuel in other
jurisdictions, thereby not contributing
funding to roads through fuel excises.
Lessons learned from operating these
systems could be used to develop a road
pricing system for passenger vehicles.
Oregon Road funding In mid-2015, the Oregon Department of
Transport will commence a third road
pricing pilot/trial. Passenger and light
commercial vehicles will be charged on
a per-mile basis.
With each evolution of the system, ODOT
steps closer to implementing a more
sustainable road funding model for its
entire road and vehicle fleet.
6. http://www.dac.dk/en/dac-cities/sustainable-cities/all-cases/transport/singapore-the-worlds-first-digital-congestion-charging-system/
7. http://www.sciencedirect.com/science/article/pii/S0967070X11001284
8. http://en.wikipedia.org/wiki/Stockholm_congestion_tax#cite_note-alliance-yes-for-congestion-tax-5
9. http://en.wikipedia.org/wiki/London_congestion_charge#Income_and_costs
Political alignment
The current funding and delivery model
for roads spreads across local, state and
federal governments and includes the
private sector. This is largely due to
complexities created by the Australian
Constitution which, through its silence,
broadly apportions the responsibility for
building and maintaining roads to the
state governments, while allowing for the
collection of fuel excise to be collected by
the Federal Government.
Further complication is inevitable when
local councils are given the responsibility
of building and maintaining some roads.
As a result, reform to the existing funding
model and introduction of road pricing
will require:
agreement from the federal and all
state governments, or
a state government to implement a
form of road pricing on its own, which
risks users being double taxed through
fuel excise and a road price.
As unanimous agreement from all states
is unlikely in the near term, alternative
and more innovative solutions must
be found.
The creation of a framework that gives
state governments the opportunity and
financial support to develop their own
road-pricing system would assist in the
development of an effective outcome.
This would allow each state to address
the specific needs of their region, while
removing the risk or effects of double
taxation. Further, an environment of
inter-jurisdictional competition would see
states learn from each other and increase
the pace with which we find a best
practice solution.
To do this, the Federal Government
should investigate how to effectively carve
out the existing fuel-excise regime.
Temporary incentives and protections
could be included to ensure the stability
of the existing fuel-excise system and
funding pool as states begin to opt out.

5. 5
System design
One of the difficulties with overhauling the
current funding model, in favour of road
pricing is that the details for such a
system are seen as complex, multifaceted
and burdened with irreconcilable
objectives. But in order for tangible
progress to occur, the focus must shift
from what and why things can’t be done,
to how they can.
A perfect system may be a worthy ideal,
but history has taught us that the most
effective systems evolve over time.
Designed correctly, a road-pricing system
will evolve through scheduled and
facilitated revisions, rather than politically
driven reform.
Potential first generation pricing constructs
A first generation road pricing system will need to offer users more than
one pricing construct, with each needing to be easily understood by drivers.
User acceptance is dependent on this choice and simplicity.
Examples of the types of pricing constructs that could be tested at first
instance include:
PRICE
CONSTRUCT METHOD POSSIBLE VARIATIONS
Cents per km Drivers charged
for their actual
road usage—
cents per km
Different rate for short and long trips
Different rate for each class of vehicle
Type of road (e.g. highway/local) or
general area
Trip based Drivers pay a fixed
charge per trip with
no distance based
component
Different definitions of ‘trip’
Annual charge Drivers charged
annually based on
kms travelled
Annual charge based on bands
(e.g. 0–5000km)
Congestion Uplift on standard
charge for driving at
times when there is
lots of traffic
Responsive to real-time traffic
conditions
Fixed time of day
Discount for travelling when no traffic
User-pays pricing mechanisms for
utilities in other Australian industries and
overseas have taken an evolutionary
approach, involving stepped
improvements starting from simpler
foundations. In fact, most pricing
mechanisms are still evolving.
For example, the forward-looking
framework that determines
telecommunications prices and service
levels on the National Broadband
Network is a significant evolution from
the rearward-looking framework that
regulates Telstra’s copper network.
Evolutionary reforms seem overly
simplistic in hindsight, but have
consistently delivered benefits over the
incumbent system before eventually being
replaced by another stepped refinement.
Refinements are often responses to
changing community needs and new
objectives. A current example of this is
the slowly building movement for
reforming Australia’s GST.
To make any progress we must
commence real-world testing of different
pricing constructs, as soon as possible.
Governments, even if reluctant to
undertake testing themselves, should
establish a framework to support and
incentivise industry and other levels of
government to do so. Real-world studies
and pilots will eventually lead to scaled
trials and a first generation of road
pricing being implemented.

6. 6
Implementation approach
Common to all major reform projects,
is the question of how to ensure that it
makes its way from idea to the real-world.
To ensure success, an implementation
framework needs to be developed
that outlines:
the timeframe for implementation
details of community and stakeholder
involvement throughout the process
The Oregon road pricing trial
In response to growing road construction and maintenance obligations and falling revenue from traditional fuel excise, the
Oregon Department of Transportation (ODOT) conducted road usage charge pilot programs in 2007 and 2012. Building on this
experience, in mid-2015 ODOT will commence OReGO, a trial that includes 5,000 passenger cars and light commercial vehicles.
The ‘per mile’ rate will be set at 1.5 cents (USD), but there will be several pricing constructs, methods of payment and providers.
While details for OReGO are yet to be released, the 2012 pilot tested the following options:
PLAN
OPTIONS MILES REPORTED INVOICE PAYMENT
ONLINE ACCOUNT
MANAGEMENT USES GPS?
ODOT Basic
Plan
All Mailed monthly Cheque No No, does not
report where
miles are driven
ODOT Flat
Rate Plan
N/A Once, at start Cheque No No device
Third party
Basic Plan
All Emailed monthly Credit/debit card Yes No, does not
report where
miles are driven
Third party
Advanced
Plan
Public roads in
Oregon only
Emailed monthly Credit/debit card Yes Yes
Third party
Smartphone
Plan
With application running,
only roads in Oregon;
without application
running, all roads
Emailed monthly Credit/debit card Yes Yes, when the
application
is running
Oregon Department of Transportation, Road Usage Charge Pilot Program 2013 final report, p.17
ODOT’s experience with its pilot programs has shown the value of involving drivers and voters in the testing and development
phase. While no decision has been made to progress OReGO to the entire fleet of vehicles, it is clear that providing drivers
with a choice regarding how they are charged will be fundamental to user acceptability.
technology requirements—user
interfaces, system reliability and
privacy protections
the sufficient transition period
required to allow users to adjust
to an introduced system
commitment to effective
communication, and
performance monitoring and
scheduled review of any trial or first-
generation road-pricing system.

7. 7
Transurban’s Road
Network Pricing Study
In 2015 Transurban is undertaking a Road
Network Pricing Study in Melbourne that
will trial various user-pays models in
real-world conditions to understand
drivers’ behaviours and preferences.
It will focus on evaluating alternative
pricing systems which are simple,
practical and achievable and also serve
to test supporting technologies across
the road network.
The study will have no impact on the
current funding arrangements for existing
roads—Transurban’s or the broader
network. It is designed to insert tangible
data into the debate and equip policy-
makers with information to work towards
real solutions. It will also work to identify
potential operational or technical issues
and prove that a practical system can be
implemented now.
We believe by undertaking exercises
such as this, the private sector can play
a meaningful and proactive role outside
of political timeframes and
perceived agendas.
Summary
The current road-funding model
is broken and this will have an
increasing impact on the liveability
of our cities.
Road pricing has been widely
advocated as a viable solution;
A variety of road-pricing systems
are being trialled and in use
overseas;
To make progress towards
implementing a first-generation
pricing system in Australia,
we need to take practical steps
now, including:
−− Educating the community
about the inequities and
unsustainability of the current
funding model as well as the
benefits and limitations of a
road-pricing model
−− Establishing the level of
service (quality of road and
travel times) that drivers,
voters and taxpayers expect
our road networks to deliver
−− Creating a framework that
carves out the existing fuel
excise regime to allow state
governments to independently
develop and implement their
own form of road pricing
−− Commencing real-world
testing of different pricing
constructs, and
−− Setting out an implementation
framework that takes road
pricing from an idea to a first-
generation system; and
An evolutionary approach to
reform will take us from a
theoretical debate about the
issue to an achievable reality
and ensure the continuing
liveability of our cities.
As we continue to refine our experience
and understanding of how road pricing
should be implemented, we will openly
communicate with government and
Australians, and constructively help
industry and policy makers reform the
way we fund roads.
The current road-funding model is both
inequitable and unsustainable and there
are tangible benefits for governments,
taxpayers and road users alike in moving
to a user-pays system.
However, the path to an effective road-
pricing system does not lie in theoretical
debates. Rather through real-world
testing, the engagement and involvement
of road users, and an evolutionary
approach we can take the first practical
steps towards a solution. This approach
would help shift the focus from what
cannot be done, to what can and ensure
the liveability of our cities into the future.

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