My new report for The New Zealand Initiative, Driving Change: How Road Pricing Can Improve Our Roads, argues the current system, heavily reliant on fuel excise duty (FED), is no longer fit for purpose.
But there is a better way.
In Driving Change, I propose a comprehensive reform of New Zealand’s transport funding model by introducing “Smart Road User Charges” (Smart RUC).
This innovative system would charge all vehicles based on how much they use the roads, when and where they drive, and what type of vehicle they are.
The concept of road pricing is not new. In fact, its intellectual lineage goes back to Adam Smith in the 18th century.
While our modes of transport have evolved dramatically since then – from horse-drawn carriages to electric cars – Smith’s core principle remains as relevant as ever: those who use the roads should pay for them.
But road pricing is not just a theory – it is transforming cities worldwide.
Singapore has led the way since 1975, using road pricing to keep traffic flowing in one of the world’s densest cities. Stockholm offers another success story. Initially met with scepticism, its congestion charge now enjoys strong public support, having reduced city centre traffic by 20%.
While there’s no one-size-fits-all approach, successful road pricing schemes share common features: clear objectives, robust public engagement, and a commitment to improving efficiency rather than revenue generation.
So, how would Smart RUC work in practice?
The system offers two main options for road users.
First, there is an automated “pay-as-you-drive” system. This uses an electronic distance recorder in your vehicle to measure your road use. You would receive regular bills, much like you do for electricity or internet, based on your actual driving patterns.
The second option allows you to pre-purchase distance licences, where you pay in advance for the distance you expect to travel. This is similar to what many trucks and diesel vehicles already do.
This flexibility ensures that Smart RUC can accommodate different preferences and needs across our diverse population of road users.
Implementing Smart RUC is not about flipping a switch overnight. Instead, the report proposes a gradual rollout over five years.
This staged approach offers several key advantages. It helps avoid the risks associated with a sudden, all-at-once change. Lessons from abroad, such as Germany’s rushed rollout of its toll road system for trucks, show that a more measured approach is often more successful.
A phased implementation also allows for capacity building over time. New Zealand’s entire vehicle fleet cannot transition instantly, so this approach gives everyone – from government agencies to individual drivers – time to adapt. It also helps maintain revenue stability.
Why should Kiwis embrace Smart RUC? Simply put, road pricing offers several benefits over the status quo:
Efficiency: Smart RUC sends clear price signals about the true costs of road use. This encourages more efficient travel behaviour, reducing congestion and improving network performance.
Fairness: Our current fuel tax system unfairly burdens those with older, less fuel-efficient vehicles. Smart RUC levels the playing field, ensuring all road users pay based on their actual use and impact on the network.
Sustainability: As more Kiwis opt for electric and fuel-efficient vehicles, fuel tax revenue is declining. Smart RUC provides a stable, long-term funding source for our vital transport infrastructure.
Yet the benefits go beyond funding. Smart RUC offers valuable insights into road user behaviour, enabling smarter investment decisions. For instance, before committing to a second Mt Vic tunnel in Wellington, we could use congestion charging data to better assess whether we need that expensive new infrastructure.
Of course, any significant change raises questions and concerns. Smart RUC is no exception. People worry about fairness, privacy, technological feasibility, and whether this is another tax.
These are all important issues that deserve serious consideration, and the full report explores each of these concerns in depth.
However, the key point to remember is this: while these challenges are real, they are not insurmountable. Smart RUC aims to create a fairer, more efficient system – not to increase costs for drivers.
It is time for a gear change in how we approach transport funding.
Road pricing rests on strong intellectual foundations and has proven successful internationally. Smart RUC builds on these tested ideas, tailoring them to New Zealand’s unique context.
The challenge now is not technical but political. New Zealand’s current land transport policies have us on the road to nowhere. Implementing a more robust road pricing system can help us change course and build a network that benefits everyone.
