ROADS AND THE HENRY TAX REVIEW

Transcription

1 ROADS AND THE HENRY TAX REVIEW Greg Smith October 2010 The views expressed in this presentation are those of the author only

2 The Henry Tax System 1. Public revenues should be collected from (four) broad and efficient tax bases Business income, personal income, land and natural resource rent, and private consumption Other revenue tax bases should be abandoned 2. Taxes may also be used to correct market failures Particularly to price externalities (the difference between social costs and private costs) 3. User charges (including tax levies and regulatory charges as proxies) are efficient if applied to beneficiaries matching the cost of their use of services

3 So what? for roads If roads are public goods, specific revenue taxes on vehicles and fuel should be abolished Taxes may be applied to price the external costs directly generated by road use Henry assumed carbon would be priced under CPRS Proposed congestion (time of day) charging and truck road wear (mass-distance-location) charging But what if roads are NOT public goods? Full, direct user-charging becomes a possible option Alternatively, Henry says fuel and motor vehicle taxes could be second best proxies if set on an efficient road cost basis net of any revenue from direct user or access charges

4 What are roads? Four confused models 1. The public good model (like watching free to air television) Roads neither excludable nor rivalrous in consumption Broad revenue taxes fund supply by government Investment informed by economics and politics 2. The club good model (like watching cable/sat TV) Roads not rivalrous, but excludable by tolls or other technology Implies suitability for commercial approaches Market-type supply: revenues from charges inform investment

5 Four Models (continued) 3. The efficient charging hybrid Capital investment on the public good model Charging only for various marginal costs of road use (usually truck wear and serious congestion leaving unclear how many other road operating and social costs should be paid for) 4. The land use model roads as accessory to real property and hence funded as part of the cost of property development

6 Dimensions Each model has several dimensions Who supplies and owns roads Who makes investment decisions, and how Who decides, collects and retains revenues What technologies are used in these processes What information is collected, who sees it, and how What if any links exist between any or all of the above is revenue linked to supply, and if so how?

7 Henry recommendations Australia has not resolved the confusion about these various models when and how should each apply There appears to be strong political and bureaucratic interest in keeping things confused Henry Review does not resolve the confusion Instead it merely asserts principles for applying taxes and charges under each model And calls for the confusion to get resolved by other reform processes Road tax reform remains contingent on road reform

8 Efficient pricing and Pigovian taxes The use of roads by road vehicles carries costs that are not borne by the user Pigovian tax solutions External costs and the Henry response Congestion (time and place) endorsed more study of costs and benefits, apply to all vehicles, with transparent use of revenues subject to further institutional reform Carbon pollution CPRS assumed Other air pollution not addressed Noise pollution not addressed Accident damage, trauma, policing endorsed cost recovery for state services

9 Direct road user charges Road Wear Henry calls for acceleration of introduction of mass-distance-location pricing of trucks linked to marginal road wear costs With revenue allocated to the affected road owner Other Road provision costs Henry tentative Possible wider application of direct road charging Possible extra charge for neutrality reasons if and where road and rail directly compete Technology and benefit-cost looks advanced for truck road wear but possibly not yet beyond

10 Tax implications Fuel and motor taxes are likely to remain for a considerable time yet, contingent on other developments Direct charging technology and institutional reform of road provision For carbon, fuel taxes wont be abolished unless replaced by economy-wide carbon pricing Reform opportunities are to make existing taxes closer proxies of road user charges But even this requires considerable road reform

11 The land use model Infrastructure may be regarded as a contributing asset associated with the use of land There is a concern that developer charges are increasing the price of serviced land but this may not be so if the cost is absorbed in raw land value Henry addressed infrastructure charging (developer charges) in a chapter on housing affordability Advocates a COAG review to ensure appropriate pricing in housing developments The principle is that developer charges should be set very transparently to meet avoidable costs of development there is some difficulty in deciding the scope of the infrastructure to be included

12 Social Roads Some (many?) roads could never be justified on the basis of economic assessments So require the public model for provision Funding for these roads can be incorporated Under public (and hybrid) provision models as part of social benefit cost analysis Under market models either as community service obligations (tax on other road users) or through explicit subsidies (from general revenue)

13 Local Government Henry advocates substantial autonomy for local government setting of property tax rates In keeping with a favourable view of this tax base Specifies principles for developer charges To optimise (not maximise) their role in road funding Implicitly, the model ultimately chosen for road taxes and funding could apply to local government as a road owner But likely to be a combination of models

14 Road expenditure and Horizontal Fiscal Equalisation Commonwealth payments to states and local government are subject to state or local HFE The equalises both tax capacity and spending needs per person So a payment tied to roads will be used for roads but an offsetting cut may be made to other grant revenues (with potential policy incentive issues) Grants Commissions have their own formulae assessing road needs, based on what appears as average policy, which often differ from the allocation method used to decide tied grants but which are better?

15 HFE (continued) What about tax and charge revenues? Motor vehicle taxes are also subject to fiscal equalisation. Should unequal access to revenues from congestion charging be redistributed across cities or Australia (in the same way that unequal mining revenues and other taxes are)? What about other revenues? Henry Review regarded HFE as out of scope But the effects of HFE on road funding and revenues would need to be reviewed if the basis for road funding and revenues is changed Other infrastructure and charges outside general government budgets are not subject to HFE processes they are considered as outside the scope of general government roads too, under commercial models, could one day be removed from scope

16 The way forward Tax reform is largely contingent on reform of road infrastructure provision In turn contingent on institutional & reporting reform Some aspects contingent on other policy developments such as carbon pricing A national road transport agreement (COAG) To establish objectives, outcomes, outputs, incentives for the use and supply of road infrastructure One institution nominated to lead road tax reform and to implement the agreement