No pain, no gain: Why the regional fuel tax is Auckland’s best shot

by The Listener / 03 May, 2018
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Nobody likes to pay more tax, but New Zealanders are economically literate enough to know that, one way or another, we all pay for infrastructure.

Winston Churchill famously called democracy “the worst form of Government except for all those other forms that have been tried from time to time”. That may well be the best way to look at Auckland’s new 10-year transport plan. It has plenty of fish-hooks, not least the pending burdensome regional fuel tax, and the risk that continuing population growth may eventually nullify the plan’s benefits. But there are probably no more fish-hooks than can be found in any mooted alternative.

Politicians never lightly do anything to raise the price of household staples such as petrol; they know it disproportionately affects those on low incomes and feeds new pressures into the economy. But there’s probably no way of funding Auckland’s growth without causing pain.

Whether paid for wholly by Government debt, in partnership with private investors or through a user-pays levy, infrastructure funding ends up imposing a cost on the whole economy. The burden can, to some degree, be skewed towards those who benefit most, as is happening with this plan. But in a country of our modest size, we’re all in it together.

The $1.5 billion kick-start the fuel tax is expected to give 14 infrastructure projects is what the Government and Auckland Council believe will be the least unpalatable option. The levy of 11.5c a litre on the region’s petrol, though resented, will part-fund the wish list of long-awaited schemes. Some are controversial, but others should make a measurable improvement in traffic flows and enable much-needed new housing to proceed.

Calls for more time for public submissions are fair, but postponement would merely prolong sectoral haggling, with no hope of a broad consensus. Polling by Colmar Brunton has found Aucklanders are 52% in favour and 43% opposed to the fuel tax, suggesting grudging acceptance is about the best that can be hoped for. Nobody likes to pay more tax.

National says it will repeal the tax, arguing fairly that Auckland’s infrastructure is of such national importance it should be funded out of the national budget, as the Waterview Tunnel was. However, most National-aligned Auckland councillors have, albeit reluctantly, voted for the tax, which suggests the need for progress has eclipsed the politics. Aucklanders will likely be inured to it by next election and will be hard to excite about a rearrangement of the funding mechanisms.

We are economically literate enough to know that, one way or another, we all pay for infrastructure. Even the regional tax is not Auckland’s burden alone, because it is likely to increase prices of goods freighted from and through the region. And if, as is hoped, it does reduce or curb the growth of Auckland’s petrol consumption, this benefit will come at a cost to Government revenue from petrol tax overall. As a recent leak from BP revealed, there’s nothing to stop petrol companies making up for depressed sales in Auckland by increasing prices elsewhere. The Government may yet regulate petrol pricing through the Commerce Act, but that’s at least a year off. For the foreseeable future, Auckland’s growth bill will be a national burden, however it’s funded.

It’s often forgotten that both the benefits and the costs of Auckland’s economic activity are shared nationally. The region’s sluggish traffic costs us all between $1.3 billion and $2 billion a year in lost productivity. Our national decline in productivity has taken the gloss off our globally impressive economic growth, stalling rises in household income, even while the economy makes strides. Easing Auckland’s congestion would help address this and would benefit everyone. Some analysts estimate better traffic flows would generate cost savings and new business worth up to $5 billion.

There will be legitimate ongoing concerns about the efficacy of proposed light rail. And it’s disappointing we haven’t included any elements of Singapore’s world-leading Electronic Road Pricing (ERP), which targets congestion where it occurs and can be nimbly time- and event-adjusted. But ERP is coupled with highly restrictive vehicle ownership rules, which would not be tolerated here.

Politically, the Government might have been wiser to impose the tax directly at source, taking the requisite $1.5 billion straight from the Marsden Pt refinery, rather than targeting Aucklanders. But it has judged the politics of being seen not to target non-Aucklanders for Auckland infrastructure was the fairer course.

Let’s hope the gains from this most difficult set of political decisions outlast the politicians who made them.

This article was first published in the May 12, 2018 issue of the New Zealand Listener.

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