Sunday, August 23, 2015

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.

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