Managing Sydney’s congestion through road pricing

First published 29 October 2017

Earlier this month I was fortunate enough to participate in a Grattan Institute panel discussion on road congestion in Sydney. After hearing the outcomes of the Grattan Institute's recent study into congestion levels in Sydney and Melbourne, the panel was asked what should be done to tackle road congestion in Sydney.

My response was that we need to implement congestion charging, alongside other initiatives including improved public transport. 

Road congestion occurs when the demand for available road capacity exceeds supply. We can tackle road congestion by supplying more road capacity - building more or wider roads, or by encouraging road users to switch to public transport (buses, trains, light rail etc), thereby freeing up road capacity that would otherwise be consumed by their car. But the supply of additional road capacity tends to simply induce more demand. To really solve the problem of road congestion in Sydney, we need to also manage the demand side of the equation, by pricing scarce road capacity.

If motorists are required to pay to use congested roads, those who would prefer to save money by rescheduling their trip to a less congested time, would do so, thereby freeing up road capacity for those that really need to travel during the busiest periods and are prepared to pay for the privilege of doing so.

"Another tax! We already pay enough to use roads", I hear you say. "What about people who have no choice but to travel by car during the busiest periods? How will people who can't afford to pay more manage?" All good questions.

Motorists already pay significant taxes and charges to help pay for our road network. These include fuel excise, vehicle registration charges, driver licence fees, stamp duty and other taxes.  Together, these taxes and charges amount to an average of over $1,300 per vehicle per annum (Productivity Commission Inquiry Report - Shifting the Dial, p134). There is no need for congestion charges to be imposed on top of these existing taxes and charges. Rather, whatever amount is collected from road users in the form of congestion charges should be offset by corresponding reductions in these existing taxes and charges, so that motorists are, on average, financially no worse off. We don't need more funding from road users - we just need to collect it in a better way that sends important price signals to help manage the demand for, and supply of, scarce road capacity.

The primary objective of a road charging regime in Sydney should be to reduce congestion on our roads by managing demand. This objective should drive the design of the new regime. Charges should be imposed for the use of Sydney's most congested roads. And pricing should be dynamic – where the price changes depending on the actual demand for the road at the relevant time. As the road becomes more congested, the charge would increase until demand falls to desired levels. At times of low demand, when the road has unutilized capacity, the price would fall until demand returns to the desired level, for example the level that maximises the number of vehicles that can use the road whilst maintaining the desired travel speeds. 

Existing tolls on privately operated motorways should be removed and replaced with the new congestion charging regime. Government would need to compensate the private motorway owners for any reduction in the revenue they receive. Conversely, the private motorway owners would need to agree to pay any additional revenue generated by the change in the tolling regime to the government. Future contracts for privately operated toll roads should be designed with the new congestion charging regime in mind. 

Although there is no need for congestion charges to increase the total amount of funding raised from road users, the distribution of the funding burden across road users would almost certainly change. Some people would end up paying more, and others would pay less. We need to carefully consider how this would play out, and put appropriate subsidies and other arrangements in place to ensure that the burden is distributed fairly, having regard to the options available to each road user and the choices he or she makes.

What do you think? Do you have a different view on how Sydney road congestion should be managed? If so, why not share it?