Summary
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While the principle of road charging as a double taxation or as a means of solving road externalities remains unacceptable, the ERF proposes to adopt innovative approaches on road charging leading to fairer and more efficient taxation


I Introduction

I.I The traditional approach to road charging

Direct tolling – the most visible form of road charging – can be traced back to medieval England but was only generalised after the Second World War as European countries were left faced with massive infrastructure building requirements.

Today, tolled roads exist in 8 European Union Member States as well as a growing number of Central European countries. Even those countries which do not apply direct tolling often resort to “shadow tolls” – invisible to motorists, but involving complex compensation procedures between Road authorities and the owner of the concession.

Tolls are of course just one means of taxing car ownership and use. Associated with other forms of vehicle taxation (registration tax, fuels tax, etc.), they form the bulk of today’s road-related fiscal policy.

Road taxes undeniably constitute a convenient means to relieve in part the burden of constructing and operating road networks on the private sector. As road traffic grows, so do corresponding toll revenues, enabling an optimal level of road investment. At the same time, traditional approaches to direct tolling have failed to take into account sustainable development concerns.


I.II Road users and externalities

Through their mobility choices, users of transport infrastructures do indeed inflict costs upon society or “externalities” : they deteriorate the roads they use, they slow down the speed at which others travel, they may cause accidents involving themselves and others, and they emit pollutants which create environmental damage.

Confronting motorists with these costs could theoretically ensure efficient usage of the infrastructure : if motorists pay less than the sum of costs they generate, road demand remains artificially high generating further externalities which society as a whole has to pay for. The economic theory behind this, “Social Marginal Pricing”, has given rise to the publication of numerous official reports, European methodologies and targeted legislative initiatives.


II Confronting Theory with Fact : Road Charging is not an adequate cure to remedy externalities

II.I Vehicle taxes easily cover the costs inflicted by road users

Vehicle taxes are primarily considered as an economic instrument, rather than a tool to influence consumer behaviour – hence the traditional reliance on Transport as a substantial source of fiscal income.

According to estimates made by the European Union Road Federation (ERF), some EUR 240 billion are collected annually through road taxes by European Union governments. This figure has to be compared with only EUR 80 billion spent on road maintenance and construction in 1996.

By European Commission estimates, the level of budgetary dependence on vehicle related taxes varies considerably from one Member State to another, but remains in all cases an important source of fiscal revenue, generating up to 10% of fiscal revenues.


II.II Road users generate social marginal benefit not just costs

Transport in general and roads in particular also play an economic role of prime importance in modern economies. Road transport activities have direct and indirect effects on employment :

  • direct job creation, which is basically due to investment in transport infrastructure (construction and operation).
  • indirect job creation, which derives from the effect on the economy’s competitiveness and productivity by transport sector activities. For instance, as a result of investment in Transport, passenger time spent travelling diminishes increasing labour productivity and output.


Roads account for 6-7% of the total employment in each country : some 14 million Europeans are either directly employed or contracted by the Road Sector

Road transport also has significant impact in terms of social cohesion and poverty alleviation. By giving freedom of movement and by providing access to the same opportunities to all citizens, roads are a factor of integration and social welfare for Europe’s disadvantaged (the poor, the handicapped etc.).

According the World Bank “for the poor, the lack of affordable access to transport deprives them of the ability to take advantage of job opportunities and of basic social services”.


II.III Social Marginal Pricing rests on flawed assumptions

Ignoring these positive contributions to our economies, current thinking on Social Marginal Pricing rests on speculative, unfair and contradictory assumptions.

Speculative, as neither the political nor the technical framework are set for European countries to provide the required playing field for such measures to have the desired effect. Not only are the technologies available for measuring social marginal cost not developed yet (for instance, the impact of driving on global climate change), it is highly debatable whether marginal pricing is the appropriate tool to modify consumer behaviour in a heavily regulated and protected market.

Unfair, as distance-based pricing creates a new barrier among consumers and transport professionals. It is countries in Europe’s periphery regions that will suffer the most from marginal pricing initiatives as their demands for transport in general and access to the European market are greater than elsewhere. As the Committee of Regions pointed out in its report on the European Commission’s Common Transport Policy White Paper : « It is essential not to create sets of “winners and losers” when introducing radical policies »

Contradictory, as the allocation of the newly generated taxes would not go towards measures aimed at improving road safety or reducing congestion and pollution. Rather, they would help subsidise inefficient Transport modes and could even generate perverse incentives. What interest would a local road authority have in improving the performance of its road network when letting roads deteriorate could bring in higher income through infrastructure charging ?

In fact recent attempts made by the Dutch Ministry of Transport Efficient Prices for Transport – 1999) to calculate the impact of applying Social Marginal Pricing to the real world have led to politically unacceptable results : whether for Passenger or Freight Transport, road prices would increase by 10-15% whereas rail prices would jump up by 50-100% !


III Time for a real debate on Road Charging

The fundamental principle of road charging as a means of solving road externalities rests on speculative, unfair and contradictory assumptions. Yet it is one of the key instruments of European Transport Policy.

This concern has led to the creation of the ERF - Infrastructure Charging Programme, a forum of road organisations, research institutes and Industry stakeholders willing to engage in an open and constructive debate on Road Charging.

III.I What are the gaps in current European Road Charging Policies ?

  • No scientific support : European fiscal initiatives must rely on solid methodological foundations, ie. unbiased scientific evidence and pan-European transport statistics.
  • No guarantee of fiscal neutrality : New charges levied by public authorities or road owners to motorists must immediately be offset by a corresponding tax reduction elsewhere.
  • No transparency : European motorists have the right to be kept informed on the level of taxes raised through their mobility choices and on the corresponding road network investment and maintenance levels.
  • No consideration for the diversity of Europe's regions : fiscal policy must avoid creating situations of socio-economical asymmetries between Europe’s regions.
  • No common charging principles : currently, there is no possibility of comparing the real cost/price situations of the different road taxation systems between Member States of the European Union.

III.II What are the cornerstones of a real debate on Road Charging ?

  • Paying for the Infrastructure. Road Charging is becoming a mainstream concept for the construction and upkeep of inter-urban roads. Research on minimum levels of road maintenance and their impact on driver safety need to be fine-tuned.
  • Paying for Services. When it is used to pay for a service, such as the use of a specific infrastructure, or in return for specific services (rest areas, information services), charging can pave the way to higher levels of service guaranteed to the motorist.
  • Paying for Quality. Because they lead to much higher degrees of cost recovery from motorists, tolls - whether direct or indirect - enhance the efficient use of infrastructure. Tolls ensure that user charges provide a direct income source for infrastructure owners, which encourages the development of service level-based Private Public Partnerships.
  • Paying for a Sustainable Future. Based on clear scientific evidence, transport taxes and charges, in every mode of transport, could be varied to reflect the cost of different pollution levels generated by road users. Considering existing taxation levels, road transport would in fact suffer the least from the implementation of such a principle.

 

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