Friday, January 27, 2006

Are we being fleeced by petrol tax?

Following on from Auckland mayors calling for the law to be changed to allow tolling on existing roads – in effect, road pricing, one argument against this is “we are already paying enough, this would be a new tax”.
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The AA has consistently argued against congestion pricing, believing that tolling should only exist where there is an untolled alternative route and that priority should be to complete Auckland’s motorway network before considering pricing existing roads.
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The AA simply fears that road pricing would be an additional tax, given the amount of money motorists already pay in petrol tax – but it ignores two very important points. The first point is that petrol tax is a very poor way of charging roads to manage the network – unlike pricing, it is a very blunt mechanism. At times of peak demand, when pricing should be high to ensure the level of service of the road (speed of traffic flow) is maintained, the road congests – Soviet style. Like queuing for bread, because everyone pays the same, it takes too long – and then people complain that there aren’t enough roads. The AA secretly knows congestion pricing works, London, Singapore and now Stockholm are examples of it working – it just fears that motorists will be fleeced more. However, are they being fleeced?
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Setting aside GST (which is placed on top of everything else, so if you fixed petrol tax, GST would fix itself), the ACC component of petrol tax (which should be replaced by being able to choose your accident insurance provider) and a couple of tiny other taxes (which come to around 1c/l), it is petrol excise that is the bulk of the tax on petrol. I mean petrol, not diesel, not LPG.
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If you are in a diesel or LPG vehicle all the money collected from your road user charges and LPG tax goes to the National Land Transport Fund, of which 85% or so goes on roads (the rest almost entirely on public transport). There is no tax on diesel, besides GST and a tiny local authority tax of 0.33c/l. So, except for GST, you’re not contributing towards other state spending from your road use. So buy a diesel or LPG vehicle if you want to deny Dr Cullen some tax.
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Of the current petrol tax, 22.5c/l goes into the National Land Transport Fund, and another 18.7c/l (rounded to the nearest 0.1c) goes into the Crown Account. However – this is where it gets complicated.
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Dr Cullen has pledged a good deal of that money for roads and public transport in Auckland, Bay of Plenty and Wellington. $900 million for Auckland, $885 for Wellington (assuming it can sort out the Transmission Gully vs. coastal highway argument) and $150 million for the Bay of Plenty. In addition, Dr Cullen has pumped another $800 million of Crown money into road spending nationwide at the last budget, $300 million over three years and the remainder over a longer period. This was surplus money that he didn’t want lying over for a tax cut or to be soaked up by wasteful spending down the black hole of health. In all, $2.735 billion of Crown funding for land transport, and most of it is likely to go on roads (Land Transport NZ ultimately decides).
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These figures are spread over a period of 12 years, (some is already spent) so you get $228 million per annum approximately in Crown funding for (mostly) roads. 1c/l petrol tax produces about $33 million p.a. in revenue. Now ignoring that a good third of that money comes in a five year blip in the middle (assuming that can be smoothed out over 12 years), you can assume that around 7c/l of petrol tax revenue that goes to the Crown is now being reinvested in land transport. So that means around 30c/l of your petrol tax is being spent mostly on roads and about 11c/l is not.
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You are still paying more in petrol tax than gets reinvested in roads, but it is a lot less than it has been for 25 years. A feather in the cap for Dr Cullen on that one, but that still means 11c/l is not going on roads. The AA is right, but it is clear that this Labour government is the biggest road building government New Zealand has seen since the early 1970s – so much so, that Dr Cullen has been voting extra money for roads time and time again in the last couple of years, beyond the growth in petrol tax revenue.
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In short, you are being fleeced at the petrol pump, but about a third less than you were under previous governments - although the 22.5c/l dedicated to land transport is going to increase annually according to the Consumer Price Index. It isn't as transparent as it would be if Dr Cullen simply changed the rate at which petrol tax went to the National Land Transport Fund, but it is still better than it was in the 80s and 90s.
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It is too much to hope that Dr Cullen will spend the other 11c/l on land transport, I don't think the budget would cope!

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