I once met with an eminent economist who worked closely with every prime minister and treasurer going back to Whitlam. My question was simple: who was the best and, more interestingly, who was the worst out of that long list of political leaders?
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Rather than indulging my (sort of immature) question, he said something much more profound.
He said that the best political leaders are those who have a coherent, evidence-based framework in their head: they know how the economy works, they know what their objectives are, and they know how to achieve them.
If you think exports are good and imports are bad, I've got bad news for you: you don't have a coherent framework.
The same is true if you think deficits are bad and surpluses are good, that high interest rates are bad and low interest rates are good, or if you pay people to cut your hair and service your car while arguing that free trade is bad.
Having a coherent framework is key to being consistent and effective in your policy thinking, and if there's one area where this is currently lacking, it's road user charging.
Much of the conversation is currently about the need to tax EVs. Petrol cars pay excise tax on fuel, electric vehicles pay none. To level the playing field, the argument goes, we need to tax EVs.
This seems odd, given we are trying to get more people to buy EVs. You don't normally tax things you want more of. We are even subsidising EV purchases through fringe benefits tax exemptions, meaning that, soon, we will be taxing and subsidising EVs at the same time.
And all this is happening when the government's 2035 climate commitments rely significantly on decarbonising our transport sector.
For those who want to tax EVs, the argument is that EVs damage the roads just like petrol cars do - if not more, given their increased weight - and should pay their fair share.
But if we go further down this road (no pun intended), the result is that someone driving an EV on an uncongested highway will be paying more than a petrol car on a congested city road in peak hour traffic.
This is bonkers, but it's the outcome we get from distance-based charging to "level the playing field". It's also the outcome we get when we have no coherent framework to think about the problem.
What are we trying to achieve?
So, let's go back to basics: what is the objective of road user charging? There are two.
The first is to charge road users for the costs they impose on society. This creates a price signal and forces people to internalise their costs on society and make more socially efficient decisions.
The second objective is to direct the revenue raised from these charges to those who suffer the harm, creating a self-fulfilling market where, for example, heavily used roads receive more funding for repairs than lightly used roads.
So, what are the costs to society? There are basically four: weight, greenhouse gas emissions, congestion and noise.
In a nutshell, this is what our road user charging framework should be based on.
EVs will pay more for weight because they are often heavier, but pay nothing for emissions and not much for noise.
Petrol cars will pay more for emissions and noise but a bit less for weight (on average), and both pay the same for road congestion.
Trucks pay the most. This makes sense. They are heavy, noisy, polluting and, if they drive on suburban roads causing more damage and congestion, they should pay even more.
Charges will come from different jurisdictions. Congestion charges are for state and territory governments while the federal government will be responsible for the rest.
This delivers great tax outcomes. Congestion charges are a significant and highly efficient source of revenue for state governments.
These can be topped up by the revenues collected by the federal government in exchange for state governments ditching their highly inefficient taxes like stamp duties and registration charges. Tied together, it also gives state governments the political cover they need to do unpopular things.
All of this is great for productivity, great for government revenue and great for climate action.
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If you're polluting less, you pay less. If you're driving outside peak hours, you pay less. If your car causes less damage to the roads, you pay less. If your car is quieter, you pay less.
Road user charging should align individual decisions with social outcomes. Punishing a light, quiet, environmentally-friendly EV driving outside high-congestion areas just so there is a level-playing-field with a petrol-guzzling Ram truck in the middle of city is terrible policy.
Louis XIV's finance minister, Colbert, once said the art of taxation was to pluck the goose with the least amount of hissing. The reason people think we should tax EV drivers is because they are an easy target: there's less hissing.
But this doesn't detract from the fact that it's bad policy. If you want a modern tax policy that boosts productivity, revenue and climate action, we're in the wrong lane.
- Adam Triggs is a partner at the economics advisory firm, Mandala, and a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution
