Petrol taxes were first levied in New Zealand in the
1920’s. It seemed a sensible idea at the time. Why not tax the motorist, the
obvious “user” of the roads, to pay for them. In the 1920’s not everyone owned
a car. It seemed right that the small minority who did should pay for the
privilege of using the roads. The large majority of New Zealanders were not
affected by fuel and road taxes. Most freight went by rail. Rail was powered by
coal.
Circumstances have changed dramatically since the
1920’s. Car ownership is no longer the privilege of the few. The nature of
modern society and the growth of large cities mean that for all income groups a
car is a necessity not a luxury. Road taxes are regressive. They have a higher
impact on lower income earners. Compounding the problem lower income earners
face long commutes due to high prices for central suburbs. Paying high levels
of petrol taxes depresses their ability to pay for the necessities of life.
Petrol tax contributes to increased levels of hardship.
Paying for the transport system by using petrol taxes
increases the cost of doing business. Good tax policy should not unnecessarily
add to the cost of production. It should if possible avoid harm the productive portion
of the economy. The part of the economic process where wealth and prosperity is
generated. Petrol tax increases the cost of doing business and those unneeded
costs flow on to the wider population in higher prices for goods and services.
The worst culprit is road user charges. This tax is
based on the thinking that trucks cause the most damage to roads. They do.
Therefore goes the thinking a system that taxes heavier users relative to their
use is the most fair. This is misguided. It is a mistaken view of who the real
users of the roads are. It assumes that the physical users of the roads are the
real users of the roads. It doesn’t take account of whose shoulders the tax
actually falls on. Truck owners pass the taxes down the logistics chain to
everyone. Transportation is at the heart of the productive economy. Everyone in
the wider economy including those who do not produce goods and services and
wealth is a user of the roads. Even the most reclusive pensioner who walks to
the supermarket and seldom ventures on a public road save on a pedestrian
crossing is a user of the roads.
The goods and services delivered to her supermarket
come by road. The “real” “road users “ are every single person who buys
anything which is carried in a truck. 80% of all freight is moved by diesel.
Every item in a supermarket, a retail shop, and a coffee bar, every business in
New Zealand one way or another get their supplies using trucks and delivery
vans. Fuel taxes imposed on the transport industry for “their” use of the roads
are “cascading” taxes. They cascade down through the cost chain unnecessarily
adding millions to the price of goods and services.
Since everyone is a road user then everyone should
pay. The best way to pay for road maintenance is therefore through general forms of taxation which applies to
everyone. Paying for road maintenance by way of income tax is a far more
sensible strategy than throwing it into the cost of production and laying an
unfair burden by way of a regressive tax on the economically weaker members of
society.
Paying for new roading and transport infrastructure is
another matter. New roads, bridges and motorways are long term assets that last
lifetimes. They are not only used by the generation alive in the year of the budget
but by generations yet unborn. Paying for them through fuel and road taxes from
current income and short term undesignated government debt is like paying for a
house in the year it is built.
A road or a
bridge will add to productivity and prosperity for at least three generations.
It is sensible to spread the cost of transport assets across the lifetimes of
those three generations. New roads and transportation assets should be
purchased through long-term government Road Bonds with the cost spread over 75
years. This would remove the cost of new roads from this vital sector of the
productive economy. Generations of taxpayers would shoulder their fair share.
New taxpayers yet unborn coming into the road using population in 40 years time
will have the opportunity to pay for the infrastructure they inherited. Older taxpayers
will not pay now for roads and bridges that they will not be using in forty
years’ time.
Spreading payment for essential roading infrastructure
across generations would allow New Zealand to upgrade some of the appalling
roads that pass for state highways. On the Desert Road there are four or five corners
that indicate you should negotiate them at 25 k to 35 k. (You should). When
winter ice and snow comes along they are impassable particularly to trucks.
Four or five large four lane viaducts and bridges would solve the problem.
These are commonplace in Sweden, France, Italy, Spain built across the ravines and
mountainous terrain of those countries. Building a modern all weather highway
across the Desert road may well be beyond the taxable resources of the current
generation. But it is well within the capacity of the next three. If the cost
of those viaducts was spread over 75 years then they could be built now and the
benefits accrue to us and our descendents. The countries number one state
highway would not need to be closed every other day in the winter for a few centimetres
of snow.
The same applies to the road over the Rimutakas from
Wellington. This road unbelievably purports to be the second state highway of
the country. A few whiffs of sleet and the entire east coast is cut off from
the capital. Fortunes are being spent making a mountainous narrow sheep track
of a road straighter. The simple answer is to build a tunnel through the
mountains with three lanes each side. This is no big engineering feat. The existing
railway tunnel was dug by hand in the 1930’s and today’s large tunnelling machines
would find it easy going. The Swiss built 70 kilometres of tunnels in the last
few decades through basalt. Again the tunnel may not be affordable by one
generation but it is by three. It goes without saying that a six lane tunnel
from Wellington to the Wairarapa would bring increased access and prosperity to
both regions. One benefit of changing the funding of new roads from current
spending to long term bond financing is that it will to provide a capital
market in a new kind of Government debt. Quality bonds for productive assets
are worthwhile assets for savers.
The point is that there are many benefits to changing
the tax mode and mix in raising government revenue. The Benefits of removing Fuel taxes and Road user charges.
The lowering of the costs of goods through changing
the method of paying for better roads will lower the costs of goods in the
stores and put more discretionary income into the pockets of all New
Zealanders. New Zealand has the most expensive grocery and food items in the
entire world. Ask anyone. Transport costs are a large factor. A large element
of high transport costs are cascading taxes such as fuel and road user charges.
Removing all petrol diesel and road charges will have
a large positive impact in rural areas. It might be possible for places like
Whanganui, Levin and Rawene to have profitable industries when transport to Wellington,
Auckland and the ports gets cheaper. Small towns and provincial cities will
have a chance to compete in the economy and not increasingly lose their
populations and become ghost towns hollowed out by high road costs. If the tax
on transport is removed our main exports can move from the factories to the
ports without a cascading tax adding to the final cost. Removing fuel taxes
will give New Zealand exporters an advantage over countries who misguidedly add
a tax to the productive sector of their economy. Lower income suburbs will have
a boost to their spending capacity.
The spread of suburbs in the last 50 years has imposed
long commutes on those who live there. Why should their costs be added to
unnecessarily while those who were earlier settlers and who tend to be more
prosperous and live in the inner city escape these costs. Remove road use taxes
and a segment of the population who do not generally benefit from tax cuts
would. They would have an increase in their disposable and discretionary
income. This would bring increased prosperity to a group that has not seen much
in a while. The poor travel from necessity the better off for leisure.
Removing road taxes will make taxis an affordable part
of more peoples transport options. Taxis are an overlooked part of Public transport
system. More use of taxis would help traffic congestion and make more effective
use of the country’s car fleet. Overseas tourists would find New Zealand more
affordable and therefore a more desirable destination than the alternatives on
offer.
Lower road
travel costs would see tourists travel more widely and spend their money at
more locations. We would attract more of them. Some of the money they save on
fuel and road taxes would be spent elsewhere in the economy to the benefit of
New Zealand businesses and employees. New Zealand is a high cost tourist
destination. It costs a lot to get here from anywhere. Imagine the number of
Australians that would visit if petrol was $1 a litre and the price of goods
was 20% lower.
It will help internal tourism. Removing petrol taxes
will allow New Zealanders to travel in their own country, go to the beach, to
visit friends more often.
There will be savings in bureaucratic costs spent
filling in form to buy diesel mileage. Some will say in a begrudging fashion that
removing road charges will put more money in the pockets of people with higher
incomes. It won’t. It would take a small adjustment to income tax rates to pay
for the road maintenance. Those affected would find little change in the amount
of tax they pay. Instead of paying at the service station they would pay for it
through their income taxes. Like all citizens they would benefit from the lower
price of goods.
Road charges and fuel taxes illustrate a circumstance
where the Minister of Finance thinks he is doing one thing but the reality of
the changes in society and the economic processes mean he is actually doing
another. In this case unnecessarily adding a cascading tax increasing the price
of goods and depressing a number of income sectors in the economy to no useful
purpose. It is preferable for the manner of taxation to reflect the reality of
today and for Road building to be paid from long term bonds and road
maintenance costs should be taken from income tax and general revenue.
