This document summarizes the history and current issues around road funding in Australia. It discusses that while roads are not explicitly a federal responsibility, the federal government relies on funding roads. It outlines the phases of local, state, and federal funding of roads over time. It notes the declining fuel excise revenues and arguments for reforming to road pricing and capturing land value increases. Overall, the document examines the political challenges of implementing pricing reforms to address rising infrastructure costs and congestion despite recommendations from numerous reviews and reports.

1. Revenue Reform
Fuel Excise and Road Pricing
Dr Michael de Percy
Senior Lecturer in Political Science
School of Government & Policy
www.politicalscience.com.au
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2. Road Funding and Provision
• Australian Constitution makes no specific
mention of federal responsibility for roads
• Funding and provision of roads in Australia
falls within ‘residual powers’ of states
• However, as roads are not specifically
excluded from the Commonwealth’s powers,
can be funded under s. 96
• Federal government has come to rely on the
achievement of other Commonwealth
responsibilities through the funding and
provision of roads (see AGD & AGS 2012: viii)
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We shouldn't, any more
than we say we'll
determine how much
we'll put into education
on the basis of how
much income tax
school teachers pay.
That would be absurd.
Bob Brown 27 Feb 1990 (the
other Bob Brown)

3. Historical Phases of Road Funding and
Provision
• Local Phase: Councils imposed local levies to fund road
construction and maintenance costs until 1920
• State Phase: Pressure from NRMA, state road authorities
established by 1930, some hypothecation of fuel excise for
State funds
• Federal Phase: Landmark 1954 Privy Council decision undoes
protection of rail, hypothecation removed, fuel excise
becomes major source of revenue, roads a major budget item,
including recent election
• Market Phase: Productivity problem (infrastructure versus
labour), funding problem (no govt debt, private sector and
sovereign risk) unsolicited proposals from private sector,
technology, random pricing trials by Transurban et al.
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4. • State-levied vehicle registration fees and
stamp duty, Commonwealth-levied fuel
excise and GST
• FY2014, public sector road related revenue
totalled $27.8 billion
• Fuel excise contributed about $10.8 billion
or 39 per cent in FY2014, down from
about 44 per cent in the early 2000s.
Road-Related Revenue (BITRE, ABS)

5. Fuel Excise Decline

6. • Introduced 1929, hypothecated to road funding,
changed to general revenue in 1959. Not related
to road use, but consumers expect it to be so
• Perennial problem (only heavy vehicles pay for
usage, but does not reflect damage)
• Transurban CEO argues that it is unfair to poorer
people driving older vehicles
• Revenue base is eroding significantly
• Road pricing and land value capture tax mix
considered alternative sources
Rationale for Reform: Fuel Excise and
Fairness

7. Status of Transport Reform
• Transport is the last major sector to be reformed
since the 1980s – inefficient infrastructure (Harper
et al. 2014)
• Australia’s transport infrastructure is not keeping
pace with population growth (Infrastructure
Australia 2015)
• Little motivation to change commuting behaviour
and few modal alternatives to change reliance on
cars
• Road-user pricing, as part of broader tax reform, is
not seriously on the policy ‘radar’
• Transport infrastructure is highly political in Australia
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8. Legacies: Ideas and Interests
• Constitutional arrangements and path dependencies,
e.g. railway gauge problem
• Strong interest groups:
– e.g. NRMA
– NIMBYism
– Environmental concerns
• Lack of modal choices
• Planning and infrastructure issues including value uplift
capture of infrastructure investment (land tax)
• Entrenched ideas that roads are ‘public goods’ (i.e. non-
excludable and non-rivalrous)
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9. Road Pricing: Political ‘Football’
• Traffic congestion will reduce productivity and cost up to $53b
annually by 2031 (Infrastructure Australia 2015)
• Technology-enabled road-user pricing recommended by:
– OECD
– Henry Tax Review
– Harper Competition Review
– Productivity Commission’s Public Infrastructure Inquiry
– Infrastructure Australia
– Recent AFR National Infrastructure Summit
– Australian Automobile Association
• Combination of road-user pricing with public and private
investment in infrastructure (road and rail)
• But politicians aren’t sure it will pass the ‘pub test’ with voters
• Comparable to advent of GST in political risk
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10. What must be addressed?
• Earmarking (hypothecation) road-related revenue for road
construction and maintenance
• Efficient use (or "sweating") of existing transport infrastructure
• Ways of enabling intermodal freight movement
• Managing public-private partnerships to take advantage of available
capital and ramp-up infrastructure spending
• Efficient approaches to competitive tendering for infrastructure
projects
• Changes to the existing fuel excise
• Effective ways to limit the impact of user-pays on those who can
least afford it
• New ways to capture the value added to nearby properties by
infrastructure improvements
• Better ways to fund public transport (De Percy 2015)
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11. Conclusion
Thank you
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