For efficiency, the answer is clear - there would be improvements. Over time, the changes would result in a much closer relationship between what the use of a road costs and the payment for that use. Roads in areas where construction costs were high would tend to cost more; roads in areas in which costs were low would tend to cost less. Users who imposed relatively high costs on the roads through the vehicles they used would tend to be charged more than users who imposed relatively low costs. People who wished to travel in built up areas at times of high congestion would tend to pay more than those travelling at off-peak times. In this way they would be encouraged to alter their travel patterns to reduce the need for expensive extra roads.
The shift to more business-like pricing, funding and management
structures would force road companies to focus on what new
developments their users want, and the prices they are prepared
and able to pay to get them.
The focus would shift from Transfund's administrative procedures, and what qualifies for subsidy, to what users really want. The current constraint on undertaking large, but potentially very worthwhile investments, imposed by the current policy prohibiting Transfund and Transit from borrowing, would be removed. The new entities would be able to assess road projects on the basis of expected future demand and revenue, not on the basis of current cash balances. Experience in other areas of transport and other sectors of the economy indicate that the long-run beneficial effect of this change in investment focus on the economy is likely to be considerable.
As regards maintenance, the shift away from technical criteria to a more business-like environment would focus attention on what maintenance is actually needed, and how it can be done cost effectively, and shift the emphasis away from what maintenance qualifies for a subsidy. There would also be some changes in emphasis between investment in improvements and maintenance as road companies face the true costs of these as alternatives.
An assessment has been made of the overall impact of the changes on the New Zealand economy in 5 to 10 years by identifying and quantifying specific benefits and costs. The following table summarises that assessment, and shows that total annual gains are estimated to be between $115 million and $295 million per year. This is modest in comparison with the size of the overall economy, but still well worthwhile in aggregate. The estimates are explained more fully in the Appendix.
BENEFITS AND COSTS FROM THE CHANGES IN ROAD MANAGEMENT AND FUNDING
| Benefits: | Possible gains (and losses) within 5 to 10 years, per year |
| Improvements in investment efficiency | +$20 m to +$55 m |
| Savings in maintenance costs | +$50 m to +$100 m |
| Reductions in congestion costs | +$50 m to +$135 m |
| Savings in administration costs | +$5 m to +$10 m |
| Adoption of the safety system | +$25 m to +$50 m |
| Improved environmental outcomes | Expected improvement |
| Costs: | |
| Extra costs from new charging methods | - $30 m to - $50 m |
| Administration costs of CMAs and other contracts | - $2 m to - $3 m |
| Annualised restructuring costs (annualised over 10 years) | - $1 m to - $2 m |
| Additional safety system costs | - $1.5 m |
| Total net annual gains | + $115 m to +$295 m |
Road costs account for only a small proportion of direct household costs. The average New Zealand household spends an estimated $481 per year when GST is added - or 1.4 percent of the average after tax household income - on roads and road safety costs. This comprises just 10 percent of the $4,740 that the average household spends on transport in total in a year. The average GST inclusive household cost of $481 varies by region, from $552 in Waikato and $542 in Gisborne to $447 in Wellington and $468 in Auckland.The regional variation is almost entirely due to differing rates payments.
The average rural household tends to spend slightly more on roads because its rates are higher. Those in rural regions tend to spend about the same as those in urban areas on the current charges directly related to travel - fuel tax and Road User Charges. This suggests that while living in a rural area results in longer trips on average, the urban lifestyle requires more frequent trips to work and leisure, and the two roughly balance out.
Road costs are also a small proportion of total costs for most businesses. For beef and sheep farming and forestry, road costs are approximately 2 percent of total direct costs. For dairy farming, even when the extensive truck operations to gather milk from farms are included, roads still only account for about 3.5 percent of costs.
Because of the relatively low level of road costs in most budgets, the impacts on most households and businesses would inevitably be small. The following examples illustrate the likely direct impact on households of the removal of rates and the increase in direct road charges to compensate for this change, if the current basis for allocating charges between different types of vehicles were retained.
IMPACT OF THE REPLACEMENT OF RATES BY HIGHER FUEL LEVIES ON EXAMPLE HOUSEHOLDS
Hypothetical example 1: Middle aged couple with children, in Auckland
Middle aged couple living in Auckland with two children who own their house (Government Valuation (GV) of house is $220,000). Their total annual income is $65,000 and they own three cars. A total of 38,000 kilometres is travelled in the three cars per year. Their total current transport costs would be $11,264/year of which $771/year would go to fund roading, road safety and enforcement. The replacement of rates by higher user charges would mean that the household would face an increase in transport costs of $102/year (0.9 percent) or $1.96/week.
| TRANSPORT COSTS | CURRENT COSTS | AFTER RATES REPLACEMENT | ||
| Transport Costs ($) | Road & Safety Costs ($) | Transport Costs ($) | Road & Safety Costs ($) | |
| Depreciation on cars | ||||
| Year 1990 value $8,000 | 1,416 | 1416 | ||
| Year 1992 value $12,000 | 2,124 | 2,124 | ||
| Year 1986 value $2,000 | 354 | 354 | ||
| Petrol 38,000 km using 3,040 litres | 2,508 | 465 | 2,747 | 705 |
| Vehicle registration (3 cars) | 474 | 168 | 474 | 168 |
| Rates of $920 with 15% to roading | 138 | 138 | ||
| Maintenance and repair | 3,040 | 3,040 | ||
| Insurance | 1,210 | 1,210 | ||
| Total | 11,264 | 771 | 11,366 | 873 |
Hypothetical example 2: Retired couple in Hamilton
Retired couple living in Hamilton who own their house (GV $200,000). Their total annual income is $19,900 and they own one car. A total of 7,000 kilometres is travelled in the car per year. Their total current transport costs would be $4,793/year of which $476/year would go to fund roading, road safety and enforcement. The replacement of rates by higher user charges would mean that the household would face a decrease in transport costs of $290/year (6 percent) or $5.58/week.
| TRANSPORT COSTS | CURRENT COSTS | AFTER RATES REPLACEMENT | ||
| Transport Costs ($) | Road & Safety Costs ($) | Transport Costs ($) | Road & Safety Costs ($) | |
| Depreciation on cars | 2,655 | 2,655 | ||
| Year 1995 value $15,000 | 470 | 86 | 514 | 130 |
| Petrol 7,000 km using 560 litres | 158 | 56 | 158 | 56 |
| Vehicle registration Rates of $1,152 with 29% to roading | 334 | 334 | ||
| Maintenance and repair | 560 | 560 | ||
| Insurance | 616 | 616 | ||
| Total | 4,793 | 476 | 4,503 | 186 |
Hypothetical example 3: Young couple in Timaru
Young couple living in Timaru with a child, who own their home (GV $95,000). Their total income is $45,000 and they own two cars. A total of 25,000 kilometres is travelled in the two cars per year. Their total current transport costs would be $6,851/year of which $715/year would go to fund roading, road safety and enforcement. The replacement of rates by higher user charges would mean that the household would face a decrease in transport costs of $139/year (2 percent) or $2.67/week.
| TRANSPORT COSTS | CURRENT COSTS | AFTER RATES REPLACEMENT | ||
| Transport Costs ($) | Road & Safety Costs ($) | Transport Costs ($) | Road & Safety Costs ($) | |
| Depreciation on cars | ||||
| Year 1987 value $3,000 | 531 | 531 | ||
| Year 1990 value $8,000 | 1,416 | 1,416 | ||
| Petrol 25,000 km using 2,000 litres | 1,698 | 306 | 1,856 | 464 |
| Vehicle registration (2 cars) | 316 | 112 | 316 | 112 |
| Rates of $990 with 30% to roading | 2,97 | 297 | ||
| Maintenance and repair | 2,000 | 2,000 | ||
| Insurance | 593 | 593 | ||
| Total | 6,851 | 715 | 6,712 | 576 |
Hypothetical example 4: Single income family in Gisborne
Single income family in Gisborne with one child and living in rental accommodation. Total income is $14,700 with one car. A total of 10,000 kilometres is travelled in the car per year. Total current transport costs would be $2,295/year of which $178/year goes to fund roading, road safety and enforcement. The replacement of rates by higher user charges would mean that the household would face an increase in transport costs of $63/year (3 percent) or $1.21/week. Although no reduction in rental has been assumed in the table, tenants generally bear rates paid by landlords and, over time, market rents will reflect changes in rates, including reductions in them. The effect of reduced rates is likely to exceed the $63 increase in petrol costs per year, and this would leave the family overall better off.
| TRANSPORT COSTS | CURRENT COSTS | AFTER RATES REPLACEMENT | ||
| Transport Costs ($) | Road & Safety Costs ($) | Transport Costs ($) | Road & Safety Costs ($) | |
| Depreciation on cars | ||||
| Year 1982 value $2,000 | 354 | 354 | ||
| Petrol 10,000 km using 800 litres | 707 | 122 | 770 | 185 |
| Vehicle registration | 158 | 56 | 158 | 56 |
| No rates paid | ||||
| Maintenance and repair | 800 | 800 | ||
| Insurance | 275 | 275 | ||
| Total | 2,295 | 178 | 2,358 | 241 |
Under the proposal, the safety management system would be introduced to manage road quality from a safety perspective. This approach has been adopted elsewhere in the transport sector and was widely supported in the consultations conducted by the Ministry of Transport. Thus, the proposal would correct the anomaly of only two of the three factors contributing to road crashes - driver behaviour and vehicle condition - being explicitly targeted, and would provide for more focus on road quality through safety management systems.
The proposal provides that the funds collected for administering the New Zealand Road Safety Programme through motor vehicle registration fees and licence fees would be dedicated to that purpose and would not be able to be spent for other purposes.
By permitting prices for road use to more accurately reflect cost, the proposal would achieve some environmental benefits. However, significant work is involved to: accurately determine the nature and extent of the environmental impacts of road transport; assess the most economic way of controlling those costs; and avoid adopting regimes that have the perverse effect of shifting road users to more environmentally harmful forms of transport. Work on vehicle emissions is well advanced. The ''Vehicle Fleet Emissions Control Strategy - Stage 1' document was released in September 1997. This has been followed up with the release of 'Vehicle Fleet Emissions Control Strategy - Final Report'.
It is also proposed that the Resource Management Act be amended to ensure regional councils can hold road service providers responsible for managing the combined discharges to air from the vehicles using their roads. To correct a drafting error that recent court decisions have identified, it is proposed that the general duties to avoid unreasonable noise and avoid, remedy or mitigate adverse effects would apply to land under a designation, as well as other land.
Furthermore, the Government (led by the Minister for the Environment) intends to review the decision making powers of 'requiring authorities', which includes network utility operators like road service providers. The purpose is to consider shifting the power of primary decision making on recommendations relating to land use conditions on 'designations' from the requiring authority to the local authority.
