Road user charging is probably the best idea we have to reduce congestion and to enable better decisions on road investment. Average travel speeds in our cities are decreasing, and congestion is only likely to worsen as our population continues to grow.

Urban Infrastructure Minister Paul Fletcher recently gave an important speech, albeit largely unnoticed, in which he made the case for a universal road user charging scheme. Charging people to drive has previously been the dream of transport and economic policy wonks – serving politicians tend to see the idea as political poison.

Fletcher trod gently, cautioning his Sydney Institute audience that “there is a lot of work to do” and that any move in this direction would be “a ten to 15-year journey”. It is still remarkable that a federal minister even took these first steps.

Fletcher warned of the potential impact of electric vehicles on fuel excise revenue, but automated vehicles represent an even bigger change.

The future of road use is made unclear by the looming arrival of these vehicles. Despite predictions that these could be the answer to traffic congestion, complications include the interaction of autonomous and traditional vehicles and the complexities of human behaviour.

Autonomous vehicles could even lead to greater congestion. The ease of travel in these vehicles might encourage travellers to take more trips as they reduce the time cost of being stuck in traffic by being able to read emails and stay connected while the car drives itself. Empty vehicles travelling to pick up goods and passengers could further clog roads.

Thus it is prudent to target road congestion now, especially when current strategies aren’t helping much. Building more road capacity or even improving public transport can’t solve congestion.

The best strategy is management of demand via a pricing mechanism that reflects the cost of the congestion caused by one more vehicle on the road. With prices that vary by location, time of day and distance travelled, such a scheme would encourage people to take non-essential trips at a different time, or not at all.

The charge could be efficient, as the trips that are discouraged are those for which the congestion caused outweighs the benefit derived. And it would be fair: drivers adding to the delay faced by others pay more, while those who drive in non-congested areas or at non-peak times pay less.

The ability to observe road users’ willingness to pay for road space will also give a better signal to planners of where additional road capacity will be of value to the community.

Don’t treat it as a revenue raiser

So Fletcher deserves plaudits for raising the issue. But he got one important thing wrong: he said that the fuel excise tax funds road spending.

Pointing out that fuel excise receipts would fall with the advent of more fuel-efficient vehicles, and electric cars in particular, he argued for a road user charging scheme on the ground that it would raise revenue for road spending.

Linking fuel excise to road funding is a furphy and gets us onto the wrong track at the very start of the road-pricing journey. Fuel excise is merely one source of general government revenue and is not in any way hypothecated, meaning pledged by law to be spent on a specific purpose – in this case roads.

It is no more relevant to say that falling excise revenues will put road funding under pressure than it is to say this will put pressure on health spending or the age pension.

Furthermore, about 75% of road funding comes from state and local government revenue, while fuel excise is a federal tax. It is true that falling fuel excise receipts would add to the federal government’s deficit problems. But there is no reason why a loss of fuel excise revenue must be replaced by another charge on motorists, or why motorists alone should fund additional road spending.

Take care to avoid an inefficient, distorting tax

The government should take a holistic approach to repair its pressured budget. It should restrict the most wasteful spending, wherever it is, and introduce or increase the most efficient, fair and simple taxes. It is not helpful to limit our thinking to motorist-based taxes to solve that part of the budget problem caused by falling fuel excise receipts.

The other problem with introducing road user charging as a revenue raiser rather than a congestion reducer is that a scheme designed on those terms is likely to produce poor results.

If we approach the task asking how we can maximise revenue, we’ll end up with charges on the wrong roads, at the wrong times, priced to maximise financial return rather than optimise congestion. For example, we might charge heavily on major roads, just to increase revenue, when some targeted charges on minor roads might do more to reduce traffic. In short, we’ll have one more inefficient, distorting tax.

So kudos to the minister for opening the debate. Let’s talk about road user charging, but let’s talk about what it should really achieve.

If we start by asking the right questions, road user charging could be the best congestion management policy we’ve seen in Australia. It could improve the driving experience without the need for big spending on more road capacity, and make sure we get the most economic and social value from our roads.

Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.

Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.