1st April, 2005
MEDIA RELEASE

Motorists May well be Paying their Way.
Government Study based on Challengeable Assumptions.

The Government study released today claims the road network costs $3.7 billion a year, while the amount recovered through petrol tax, road user charges for diesel vehicles, registration fees, licence fees, and local body rates, is only $2.6 billion – a shortfall of $1.1 billion a year.

While the report is not government policy it is intended to influence policy. The report states that the overall purpose of the study was:

“… to provide estimates of the costs imposed by road users and by rail users, and the payments they make for using each mode. ... This information will assist the government to make decisions on the relative competitive position of road and rail for freight transport and of rail, bus and the private car for passenger transport.”

The report claims that motorists pay only 64.5% of their costs, trucks pay 56% of their costs while rail is the least “subsidized”, paying only 86% of its costs.

The report, Surface Transport Costs and Charges Study, was prepared for the Ministry of Transport by Booz Allen Hamilton, assisted by the Institute for Transport Studies, University of Leeds, and Associated Consultants.

However, the Centre finds that the report presents only one side of the cost and benefit balance sheet and the “road user deficit” is based on some challengeable assumptions and conclusions.

All costs – no benefits.

The report openly deals with costs and charges only, and makes no attempt to assess any of the benefits the road and networks provide the taxpayer.

This leads to the claim that taxpayers are subsidising motorists. The reality is that taxpayers have willingly funded the construction of roads long before motorists existed, and presumably did so because the roads provided significant benefits. As well as the carriageways for vehicles, whether hand drawn, horse drawn or motorised, roads provide footpaths for pedestrians, berms for street planting, and easements for infrastructure, such as drains, water supplies, telephones and electricity.

Roads also provide light and air to dwellings along their length and provide acoustic isolation between dwellings on opposite sides of the street. When ambulances transport sick people from their homes to hospital the road network is providing a benefit to those taxpayers.

Societies need roads whether those societies have motorists or not. Romans built roads and we still use them. Obviously roads provide benefits to “taxpayers” and non-motorists alike.

Some of the external costs included (eg premature deaths from pollution) are not borne by taxpayers but by affected individuals.

This report cannot be used to claim the taxpayer is subsidizing the motorist.

Such a conclusion must wait on a comprehensive analysis of both benefits and costs.

Some Challengeable Figures.

The claimed subsidy totals $1.1 billion dollars.

Table 3.1: Total Road System Cost Analyses (2001/02 Statistics), on pages 39-40 contain the following line items:

- Environmental: Air Pollution $442.0 million.

- Environmental: Noise $289.0 million

- Environmental: Climate Change $317.0 million

These three lines total $1,048.0 million

This total of $1048 million is close to the claimed “subsidy” of $1,100 million.

The claimed cost of air pollution is based on a study by NIWA for the MoT which concluded that vehicle pollution caused 399 premature deaths per year, generating taxpayer costs of $442 million.

However, these figures are based on a methodology developed by a group of Austrian, French and Swiss scientists and transferred directly into New Zealand. The conclusions have not been ground-proofed (i.e. tested against observations in the field) in any way.

A group of United States atmospheric scientists in the Health Effects Institute (the HEI) developed a methodology which delivers markedly different results. When this methodology is applied to the New Zealand data, the number of premature deaths is reduced to only 25. Presumably the cost to the taxpayer is similarly reduced to $28 million.

The $289 million attributed to noise is challengeable if only because no taxpayer actually pays anything towards it. Also motorways and major urban roads reduce the noise on the residential roading network and hence provide an environmental benefit. But the report ignores any such benefits.

The charge of $317 million to “climate change” is mysterious because during the years 2002/2002 there were no Kyoto charges and certainly no taxpayer has paid anything towards this charge.

Hence, all that remains of these “subsidy” line items is $28 million.

This reduces the total claimed “subsidy” from $1,100 million to $80 million.

Given the error terms involved this revision alone suggests that the motorist and taxpayer are near enough to breaking even.

Some other challengeable assumptions include the fact that all driving time is presumed to be a cost, even though many people drive for pleasure.

Railways Get Beneficial Treatment.

Table 3.3: Total Rail System Cost Analyses, contains some doubtful assumptions.

For example, the line item for Accidents–externality is labelled N/A which suggests that trains do not have accidents. US figures show that deaths per passenger mile for urban rail systems are higher than for cars on motorways.

Similarly the N/A alongside Environment: Noise suggests that trains do not make any noise. Those who live near railway stations and railway lines would presumably disagree.

Conclusion

This report is long and quite complex. In the time available the Centre has been able to do no more than query some of the assumptions and line items. Further analysis may explain some of the items queried here. The Centre simply wants to suggest that this report should not be accepted as some “gospel” which is beyond challenge because:

- It is most unusual for an analysis that includes external costs to exclude external benefits.

- Such economic analyses are normally either straightforward analyses of costs and revenues, or are comprehensive studies of costs and benefits.

- This report is a strange and unusual hybrid.

Certainly, contrary to the claims of the Minister of Transport, the scope of the report is not sufficient to challenge the traditional presumption that motorists are subsidising the general taxpayer. That must wait on a more comprehensive analysis.

ENDS

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