Learning the lessons of Sydney’s toll-roads mess - Grattan Institute

Let the NSW toll road network stand as a cautionary tale for other state governments. With 13 toll roads, toll prices locked-in for up to 37 years, and hundreds of millions of dollars per year in driver bailouts, it’s a mess.

The Minns government has given the job of unscrambling the mess to two eminent reviewers. They need to balance maintaining Sydney’s vibrancy, finding a fairer way to apportion who pays how much, and limiting the cost to the taxpayer of unpicking long-term contracts. What needs to come out of the review is a set of charges that are not too high, and a mechanism for charges to change when road conditions change.

The cost-recovery model that underpinned this debacle is broken. The idea had been to move away from taxpayers fully funding roads, and instead to share the costs between taxpayers and drivers. The private sector would build and operate these roads, charging drivers tolls that were written into contracts and mostly rose by CPI or 4 per cent per year, whichever was the higher. But, in hindsight, taxpayers did not get full cost recovery; NSW is on its third toll relief scheme, and it’s possible that taxpayer-funded compensation will be paid to toll companies. It’s clear that tolls won’t fully fund roads.

Even worse, successive governments gave away control of key parts of the road network. Each toll price on its own may have made some kind of sense, but now that there are 13 toll roads, with prices set in a bewildering variety of ways, it’s unsurprising that the system is not a coherent network.

The government should do a fundamental reset. The world has changed since many of the toll deals were struck: there’s much more public transport; the technology options for implementing tolling have become cheaper and smarter; and if you have an electric vehicle or even a hybrid, the cost of a trip has plummeted.

Instead of attempting cost recovery, charges should be set to shape traffic flow over the course of the day and the week.

That means two things. First, excessive toll charges should vanish. Outside peak times and places, tolls should be very low or zero; it makes no sense to deter traffic when there’s enough road space to go around. In peak periods, it’s different; tolls should be set at a rate sufficient to encourage those drivers who are most able to be flexible to save money by taking their trip at a different time, by a different route, or by public transport. You don’t need to deter too many drivers to maintain a steady flow of traffic and reasonably predictable trip times.

Second, tolls written on stone tablets should also vanish. That’s partly because road conditions change, in the short and long term. Think of what the pandemic did to traffic, but think too of how patterns of work, travel, and settlement have changed over the decades. Rigid toll rates should also vanish because you can’t know for sure what the right price is to get the traffic flowing; instead, the government should run structured experiments to see how drivers respond to prices, and regularly recalibrate the tolls to be as low as possible while still keeping the city moving. They do this in Singapore, and it works.

Inevitably, the government will be confronted with some challenging personal stories if it overhauls the tolling system. What about a nurse, say, who lives in western Sydney, works 30 kilometres away in the eastern suburbs, does school drop-off, and has no realistic public transport option? In the near term, there is little that she or the government can do. But longer term, there are options. The government could reduce or abolish stamp duty, which is a brake on selling up and buying a better-located home. And it could ease restrictions on where homes and businesses can be built.

The aim should be a road system that enables as many people as possible to share in the best that Sydney has to offer on any given day. This means all urban motorways would have peak-period charges that vary depending on where you are and how big your vehicle is, but at rates that aren’t brutal, and off-peak prices at zero or close to it. It would mean charges that change over time as conditions change, and where we all understand the basis of the change. And most of all, it means no more setting traps for future governments.

Marion Terrill

Transport and Cities Program Director
Marion is a leading transport and cities expert with a long history in public policy. She has worked on tax policy for the federal Treasury, and led the design and development of the MyGov account. She has provided expert analysis and advice on labour market policy for the Federal Government, the Business Council of Australia, and at the Australian National University.

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