Sam Buckle: Road users hitch a ride on everyone's back

State highway users pay only 40 per cent of roading costs. Photo / Mark Mitchell

A new report by Rockpoint Finance has found that users of the State Highway network are paying only 40 per cent of the full costs of providing roading infrastructure. In effect, that represents a $1.5 billion dollar annual subsidy.

As Rockpoint observes, we have different ownership models and expectations for different transport infrastructure. Shipping infrastructure - ports - are (largely) owned by local government but operated commercially. They value their assets and expect to generate a return on them, reflected in their pricing.

By contrast, the rail network is state owned, needing an annual subsidy of $90 million just to cover its operating costs. There is no realistic thought of a return on the rail network's capital value.

But while rail has been widely derided for its lack of commercial viability, virtually nothing has been said about a road network that is neither managed commercially by its owners nor with any expectation of a return on its capital value.

The Treasury values our stage highway network at more than $20 billion - and it constitutes only 12 per cent of the total roading network. Roads are the country's most valuable asset. They return nothing.

The Minister of Transport, Steven Joyce's, response to this issue misses the point. He told the Herald there is no road subsidy because "we operate a pay-as-you-go" system for road funding. In fact, the PAYGO system is irrelevant. It simply means what it says - you pay as you go.

It does not mean you pay a commercial rate or a charge that reflects the capital value of the infrastructure. That is what needs to be addressed.

This issue has not received attention given the Government's focus on productivity, given its desire to see transport choices determined by markets and price signals and given its interest in securing much better returns from state owned assets.

For some reason, the management of our roading infrastructure has avoided the scrutiny applied to other state assets and services. We apply commercial models to the electricity network, we invite commercial behaviour into our health and prison sectors, but when it comes to road transport, everybody's a socialist.

Yet, the effect of allowing road users to piggyback off the public's infrastructure is huge and multi-dimensional.

First, there is the competitive edge and market distortion it creates. The chronic under-pricing of roads artificially cuts the price of moving freight by truck and results in a misallocation of economic resources.

And let's not forget the associated congestion and emissions costs.

According to the report, Government and territorial authorities do not attempt to generate a full economic return on the value of the road network. The report also states rail is a recipient of significant financial support for network and operational requirements and fails to generate a commercial return on infrastructure.

In contrast, coastal shipping targets a commercial return on its operations (inclusive of capital costs) and is required to meet commercially established port charges.

These represent approximately half of total operating costs, as compared with current infrastructure charges for road at 14 per cent and rail at 9 per cent, says the report.

Second, the current model is denying the taxpayer and the Government billions of dollars in revenue a year, at a time when the Crown's account is in most need.

Why should we treat the road network any different to the electricity network? Transpower, the SOE owner of the national electricity grid, values its assets, looks to make a return on that value and pays the Government shareholder a regular dividend. If anything, electricity has a stronger claim to social good status and a stronger case for operating non-commercially, than transport.

Historically, the politics of this issue have stood in the way of good policy. Politicians have been reluctant to stand up and add costs to transport. There has always been an Opposition ready to pounce on the suggestion.

But, in an MMP environment, there is a renewed opportunity. There is the potential to bring together those philosophically committed to markets and commercial models with those interested in changing transport behaviour as well as those wanting to secure greater certainty over Crown revenues.

Right now, the Government is making decisions about the future of our rail network. It has signalled, rightly, that rail needs to stand on its own feet without subsidies and to operate according to a commercial model.

Right now, the Government is embarking on a National Infrastructure Plan. The first issues paper has already been published by the Treasury.

Right now, the Ministry of Transport is thinking about options for shifting Road User Charges to a more demand-based pricing system.

There is an opportunity to have a full and robust debate about road management and pricing.

The full Rockpoint Corporate Finance report, Coastal Shipping and Modal Freight Choice, which was commissioned by the New Zealand Transport Agency, can be found on Rockpoint's website - www.rockpoint.co.nz.

* Sam Buckle is executive director of the New Zealand Shipping Federation.