Monday, 16 February 2015

Vehicle ownership tax mooted for California

Like many US states, California too has issues around raising sufficient funding to pay for highway maintenance and construction.  UT San Diego reports that Toni Atkins, Speaker of the California State Assembly has proposed, in essence, a motor vehicle ownership tax at US$52 per annum.  She suggests it could be higher for trucks (based on weight) and electric vehicles (because they don't pay fuel taxes), but would be hypothecated to transport funding. 

Arguably this is an efficient way of recovering at least part of the fixed costs of the highway network, which by some measures accounts for an average of half of all network maintenance costs.  This is the network degradation due to the effects of radiation from the sun, rain and changes in temperature. 
Charging all vehicles a "network access charge" isn't a bad idea in that context, and it parallels similar taxes in other jurisdictions.  In the UK it is called Vehicle Excise Duty, and is related to vehicle weight and CO2 emissions, although none of the money raised is dedicated to spending on transport, it can cost a vehicle owner anything from nothing (for low emission vehicles) to US$1676 for the highest emission vehicles (full schedule here).

In Australia, vehicle registration fees are set by states, with heavy vehicle rates set them to offset the undercharging inherent in charging diesel tax (as the heaviest vehicles do not pay enough diesel tax to reflect the damage they cause).  For example, in the state of Western Australia an average car will cost US$167 to register.  By contrast, the heaviest truck combination will cost US$7551 a year to register.  That incentives high utilisation and also incentivises vehicle fleet owners to buy vehicles that are suited for what they want to do, and not to purchase those that are too big.  

However, such charges have some fundamental weaknesses, most notably that they reward those who use the network the most, and in the absence of charges for congestion or by location, it is a blunt mechanism.  It also can incentivise evasion, as some will choose to supply false details for registration or register in neighbouring jurisdictions to avoid higher charges.  

A better option for fixed charging operates in some European countries in the form of "vignettes", whereby an access charge is set for using just motorways and major highways.  It means that the stereotypical "little old lady" who only drives around town doesn't get hit, but heavy commercial users and most others do.  For countries and states where driving off of major highways is a huge inconvenience, it works.  It's worth noting that it is primarily applied in Europe as a way of also capturing foreigners using national highway networks.  The access charge itself is time based, so that you can buy a vignette for as long as a year, or as short as four days.

However, revenue only grows as vehicle fleet numbers grow, not traffic.  So it can never replace other means of charging, only supplement them, and even then for it to fully recover fixed costs it would have to be at levels that would incentivise too much evasion to be desirable.

In my view, whilst there are sound reasons why such charges could be turned to in the past, today it is more questionable as to whether they should be introduced now beyond simply recovering the administrative cost of operating the vehicle registration database.   However, it is still a closer link to road use than any talk of a sales tax on everything everyone buys, to subsidise roads.

Far better will be to charge for the use of the roads, by distance and eventually location, weight and time of day.  That's both economically efficient and equitable, the question is how to get there.

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