28 August 2009

So what's the transport funding about?

The NZ Transport Agency (yes it used to be Land Transport New Zealand, and before that Transfund) has announced its three year funding programme for roads and public transport. It used to be an annual announcement, so it is a positive change to announce three years worth of spending, which given the length of transport project makes some sense. Bear in mind that the whole legal and bureaucratic arrangements are ones set up under the previous government.

The government's announcements are telling. There has been a boost for roads compared to public transport, but nothing like what the opposition are saying. Given virtually all of the money being spent comes from road users it should hardly be a big deal to have most of it going on roads or services related to roads. Steven Joyce's press release lists a number of projects that are to be progressed, none of which are bad projects, though I note that Transmission Gully has no additional construction funding. The programme itself lists the construction costs of Transmission Gully at over NZ$1.4 billion. A ridiculous sum when upgrading the existing road would be unlikely to cost NZ$1 billion. Steven Joyce himself appears to be warming up the public to Transmission Gully being dumped. Good.

Anyway, so what is worth noting?

The proportion of spending on state highways is 59% up from 51% under Labour. There are big new projects, like committing money to build the Waterview Connection in Auckland, over the property rights of locals, the Te Rapa Bypass north of Hamilton and the Tauranga Eastern motorway (which will be tolled to pay part of the cost). Most of the rest of the spending is on already committed projects and maintenance. Notably, funding for Police enforcement of traffic laws is not increasing beyond inflation. I expect better performance will be sought under THAT contract. No, the Police don't get revenue from traffic fines either.

Money to subsidise public transport is becoming more focused, on projects that actually reduce traffic congestion, optimise service operation (?) and improve fare recovery from passengers (in other words wean services off of subsidies). 57% of public transport money is spent in Auckland, although 48% of public transport usage is there. Think about whether that's working.

From my perspective it is largely business as usual. The good thing is that all taxes from motorists are now spent through this, although it was Labour that introduced that, after National campaigned on it in 2005. It is also good that roads now get more of the money, 86% of spending is on roads or road related activities (planning roads, operating and policing them). However, this bureaucratic system still doesn't provide a link between users and the supply of roads. How do we know the projects are worth building? From a bureaucratic cost/benefit exercise and judgment. The fact remains all the money from road users goes into a pool and it is spent based on how users are perceived to "benefit" from the spending, not whether the money raised in an area or on a road is spent on that road or nearby network. There are huge cross subsidies, users in some areas undoubtedly pay too little, others pay too much, and demand isn't influenced by price - for example, it should be very cheap to use roads at the quietest times, but expensive when they reach capacity.

However, as long as government builds things, most people are happy. For now. Also, to be fair, New Zealand does this bureaucratic funding of roads far far less politically and more objectively than most countries. Bridges don't collapse due to lack of maintenance, and big new roads to nowhere don't get built, anymore. It's just the railway that's the biggest drain of pointless spending now, but most of the money on that comes from taxpayers directly, not motorists.

Other comments?

Darren Hughes says local roads will suffer, as they get no real additional money. The reason given is because councils have to increase rates for government to match more spending on roads. There is a serious issue here, but it would be better fixed by allowing councils to set charges for using their roads and replace rates funding with property access levies on roads where charges don't pay enough for maintenance. Hughes is talking nonsense on public transport though. Surely if public transport patronage rises, higher fare revenue should mean lower subsidies, although Labour's subsidy scheme encourages the opposite. The truth is Labour can criticise little, since National has largely continued Labour's funding allocation process. All it has done is scrap the pointless rail and sea freight spending and directed that and some public transport funding allocations to state highways.

Sue Kedgley of course talks mindless nonsense about the announcement:
- More than half of the NLTP budget ALWAYS went into state highways Sue, but then half the money came from motorists USING state highways.
- Yes every $7 spent on roads (including maintenance) $1 is spent on public transport, forgetting that another $1 is spent by ratepayers and yet another $2 is spent by the fare paying public. You see Sue, with one exception, roads aren't tolled. Oh by the way, for every person riding public transport, another 18 or so are driving or riding in a car.
- "It is especially disturbing to see almost no funding going into rail and sea freight - we have to shift our freight to these modes or else risk serious damage to our economy when the price of oil rises" What do you call subsidising Kiwirail from taxpayers Sue, and do you think Queenstown, which has no rail or sea freight at all, has been seriously damaged as a result?

The economic illiteracy and complete factual evasion of the Greens continues to astound.

ARC Chairman Mike Lee is cheering it on, proving it still has too much money for public transport.

ex. ACT MP and Rodney Mayor Penny Webster is upset that the dog of a project, the Penlink bridge, wont be getting special subsidies. So it either stands on tolls and property levies or wont be built. Good.

So let's not get too excited because reporters just report on press releases. Be grateful your motoring taxes are mostly going on roads, and if you are interested look here for your region to see what you'll be getting or not getting. Don't get excited if you're in Invercargill though, move along, nothing to see here (quite right too).


WH said...

"Don't get excited if you're in Invercargill though, move along, nothing to see here (quite right too)."

They are bit grumpy about that down there - way too much cross subsidisation of inefficient North Island cities by productive Southern ones.

jarbury said...

That's why I am a fan of regional petrol taxes actually.

Invercargill doesn't really need anymore roads, they just need to look after their current roads. So of course transport spending there is likely to be lower than elsewhere. However, I also think that their petrol taxes should be lower than elsewhere to make up for that.

Compare that to Auckland, where we need significant further investment in transportation. I disagree completely with Liberty over his public transport v roads argument, largely because he's ignoring the massive hidden subsidies roads enjoy, but the point being that overall Auckland is growing much more than Southland, so therefore needs more money spent.

Therefore, Auckland should pay for it. If we lumped on a 20-30c a litre petrol tax in the Auckland region we'd have enough money for an enormous number of transport projects (rail too, as road users benefit from there being fewer commuters on the road). That would avoid cross-subsidisation in the regions.

Libertyscott said...

Actually Southland pays for itself, just. No new construction, but a huge network with high fixed costs and little traffic generating petrol tax and RUC to pay for it.

Jarbury, you have two huge problems with regional petrol tax. For starters around 40% of NLTF revenue comes from RUC - you can't regionalise RUC without a major technology upgrade, so in effect you can't regionalise spending on road maintenance. Don't even mention regional diesel tax as 40% of the diesel isn't used on roads and diesel tax doesn't come close to reflecting marginal costs of heavy vehicle damage on the road network.

Oh and how is regional petrol tax fair to service station owners near the boundaries. Petrol is often not consumed in the region it is bought in.

In short, it is a blunt idea that doesn't do what is intended.

A far better idea is to modernise RUC, varying it by region so that km used in a region are at the price for that region or even district.

Though I am curious why you care about cross subsidisation when you want a massive cross subsidisation of urban public transport (intercity public transport can run commercially).

WH said...

Regional petrol tax is a bad idea - better to invest in a decent E-RUC system, then you could have a decent pricing system. Southland just discovered the perils of regional petrol taxes - it effectively got nicked to pay for North Island roads and passenger transport. Reading the regional NLTP reports you can conclude (from NZTA GDP and pop'n stats) that the least productive regions are being subsidised by the most productive - would seem to go against the allocation criteria of improving economic efficiency/productivity - odd to penalise success. Then again its an allocation beauracracy

Owen McCaffrey said...

The argument that money for roads comes from road users so it should be spent on roads is not logical.

Think about it for a second.

They use the roads because there is no viable alternative. This is because any viable rail or public transport alternative has been subsidized out by 50 years of government investment in road infrastructure.

Road user charges are just a tax. that's all. another way to collect it is all that is different.

jarbury said...

I think in the future we're probably going to shift away from petrol taxes and towards RUCs for everyone - so perhaps there will be the possibility of developing a smart-RUC system.

In terms of petrol stations on the boundaries of a region, that's a pretty small issue really, and seemingly only applies to the BP at Bombay Hills if you're talking about Auckland. No need to let one situation mess up the whole idea.

I agree regional petrol taxes are a blunt instrument. However, they are pretty cheap to administer compared to the kind of GPS big-brother concepts that would probably provide a more nuanced approach.

Libertyscott said...

Owen: What nonsense. That's like saying people use electricity or reticulated water because there is no viable alternative. People are intelligent enough to make choices based on the world around them, it might occur to you that alternatives are NOT viable.

The railways in NZ have been subsidised endlessly since 1971 directly and long before that indirectly. Indeed they have been bailed out FOUR times in my lifetime (1982, 1990, 2003, 2008). Bear in mind the rail network had a statutory monopoly on long haul freight until 1982 and still lost money in its last ten years as a department. The road network has always generated a net surplus for the government from usage fees.

RUC is far more sophisticated than just a tax, find out how it is calculated, as it bears a close relationship to how different weight/axle configurations impose wear and tear on the road network. Besides, how else do road users pay for the marginal costs of road use.

Jarbury: Yes I would start by converting the current system to ERUC, and for heavy vehicles varying charges by road type and location. That would put freight on a fairly even footing between road and rail by route.

Then have all new cars using ERUC. It doesn't need to be big brother like - that's just tabloid media bullshit. I know this technology VERY well.

Owen McCaffrey said...

So Just how would you go about having to go between Hamilton and Auckland for business meetings? on the once-a-day train service? Wow that really competes with a car which is cheaper because of subsidies and more flexible because there is only one trip per day between the cities.

No. There is no viable alternative to the road for almost all uses of the modern car (besides ridiculously short trips).

When you subsidize rail but you subsidize roads more guess who wins? Roads. It is simple math.

All taxes have a way of being calculated but these often bear no resemblence to how these taxes are then used. Do you think customs duties are used to pay for customs officers? Or are your GST at the dairy used to pay for that dairy? Come on.

Libertyscott said...

Owen, obviously a person uses options that are available. What's stopping you setting up alternatives since you clearly think people would use it?

The car is always more flexible, it has no timetable and takes you door to door. You can only replicate that with a taxi. Why is a car using SH1 from Hamilton to Auckland subsidised? SH1 generates a substantial financial surplus. Who subsidises that?

Of course there is no viable alternative to using roads, it is the only ubiquitous network. So what? It can pay for itself quite easily.

Again you pretend roads are subsidised. Local roads are (rates) but state highways are not. You can eliminate rates funding of local roads by lifting petrol tax by around 8c/l and equivalent increases in RUC - not going to make a huge difference.

Owen RUC is calculated using a Cost Allocation Model, recently it was reviewed and updated. The entire RUC schedule is produced using the model, and it is based on the 4th power rule and further refinements. You wouldn't know that of course. All of the money from RUC is hypothecated to the National Land Transport Fund, Customs Duties are not, and are not set to recover costs. Customs Duties are set as part of commerce policy.

So sorry, you know nothing about RUC, how it is calculated and what happens to the revenue. I spent several years having some responsibility for the system.

jarbury said...

Liberty, apparently big 44 tonne trucks cause as much road damage as 10,000 cars. Do they really pay 10,000 times more per kilometre than a car would?

Libertyscott said...

Jarbury, I suggest you read this http://www.transport.govt.nz/ourwork/Land/Documents/SKM%20Engineering%20Advice.pdf and this try the NZIER and Infometrics reports here too http://www.transport.govt.nz/ourwork/Land/RoadUserChargesReview/

It is more like 4000 times the damage as a 5 tonne truck, and yes the RUC does reflect this. Bear in mind that half of all road costs are fixed, and these are split pretty much evenly among all road users.

Some years ago I seriously believed rail was being ripped off by how roads were charged for and funded, I changed my view after studying the economics

Owen McCaffrey said...

Treasury's website says that RUC only cover 70% of transport spending. Therefore it has obviously been subsidized heavily over the last 100 years.

Owen McCaffrey said...

Of course roads will be able to pay for themselves because demaind for them is almost completely inelastic. A tax can be imposed and people have no other transport option in many situations other than to not travel.

If there were a viable public transport option, RUC would not be able to be as high as they are because people could easily vote with their feet and force taxes down again.

So arguing that road transport can cover costs so therefore is better than public transport is not correct because you are not comparing two things whih exist. You are arguing for the success of roads against a good public transport system that doesn't exist. Were there to be a viable public transport option road patronage would reduce, demand would become way more elastic and earning from road taxes would plummit. But I am sure you already knew that.

Libertyscott said...

Owen: 70% of what? You'll find the NLTP is fully funded from RUC, Fuel Excise Duty and Motor vehicle registration and licensing fees. Go to the NZTA website and download the NLTP you'll see a diagram that explain it. Road User Charges are a distance and weight based charge on all vehicles over 3.5 tonnes and all vehicles that do not use fuel taxed at source (except light electrics). From what you wrote here I guess you didn't know that.

RUC has only existed since 1977, before that heavy vehicles were charged by diesel tax and MVR, but that's hardly important now.

Well road transport demand has low inelasticity because it is highly valued, although when RUC was imposed it did encourage less distance to be travelled and for more efficient axle configurations to be used, reducing road wear.

I don't see how RUC has anything to do with public transport, most RUC is recovered from heavy vehicles.

Nevertheless, your concept of a "viable" option is one that needs vast numbers of non-users to pay for it. Hate to see you open a "viable" restaurant or telecommunications company or airline, given you'd clearly want someone else to keep it viable other than your customers.

No Owen, your rather simple idea that lots of public transport (funded presumably by all the lucky people sitting at home being Green) would decimate road demand isn't born out by real life example. Japan, the UK, the Netherlands, Germany for example are all countries with much public transport, but also - amazingly - heavily congested roads. In the UK, receipts from road taxes are 4.5x the expenditure on roads. Why would people keep driving?? In the Netherlands, it isn't much different, yet everyone is within an hour's walk from a bus or train - but so many people drive. By the way, spending on rail and public transport in the UK is almost as much as is spent on roads.

All in countries with populations and population densities that show New Zealand to be a vast empty space. Google Earth any of those countries finds little rural land that isn't close to cities.

Of course what stops anyone setting up your viable public transport option? If people would use it, why wouldn't a businessperson set it up?

They do of course, they are called intercity bus companies and airlines - they ARE viable public transport systems.

and nowhere in the world have motoring taxes plummeted (especially after public transport subsidies increased or services were vastly improved), except for one reason - fuel efficiency for those dependent on fuel taxes (New Zealand has only seen growth in fuel taxes decline).

Sadly the Greens cling to a largely discredited belief that public transport always reduces private motoring. The truth is that it can attract mode shift in specified limited cases that are based on origin-destination patterns, changes in journey time and generalised costs, and largely only for peak time CBD based commuting. The rest of the time it has next to no effect, and can be wealth destroying (and bad for the environment).

For example, a recent study into high speed rail in the UK stated that unless it achieved a very optimistic modeshift from air and road to rail, the high speed rail line would increase carbon emissions (as taking people from existing trains and buses is a net loss, as is generating new demand). The conclusion was the modeshift was unlikely, as most of those who flew, flew to connect to other flights, and rail would never be competitive. Anyway, my point being that the simple analogy really doesn't work. That is what transport modelling does, it tries to identify what human behaviour actually is based on observing past trends.

Owen McCaffrey said...

People wouldn't use a public tranport option because the government has subsidized roads.

With a level playing field either could have won the battle.

Go to the treasury website and it clearly says under transport vote that RUC pays only 70% of transport costs.

It is not relevant how the tax was calculated. It didn't cover the cost of transport.

NO, in the absence of roads/highways everyone would use the public transport so no non-users would pay for anything - everyone would be a user. Reverse this situation and you have roads today.

You say road transport has low elasticity because it is good. How do you know that isn't because there just isn't another option? You can't know and you obviously don't.

I never brought up RUC. The case is that roads are subsidized and have been for 100 years.

Germany, UK, Japan - good examples...for me. You do realise that they all have extensive networks of subsidized roads? take away the subsidised roads and public transport would win hands down.
Who would walk an hour to get a bus when you can take a car - no competition. Until there is a public transport system that has as much investment as roads have had there is no way that they could compete.

If you could catch a bus outside your house or have to walk 30 minutes to get to your car which would you take? Right.

The reason that your analysis of public transport "mode-shift" does not work is because if public transport only works at peak hours and in some destinations then it is not competitive.

Until public tranport is as frequent and ubiquitious as roads...there will never be competition.