Call For Australian Road Tax Reform

Mary Swire, Tax-News.com, Hong Kong

23 November 2010

The combination of more fuel-efficient vehicles and diminishing oil reserves will lead to fuel taxes becoming an unreliable source of funding, and so a new integrated funding framework for transport infrastructure in Australia is necessary, according to Consult Australia, formerly the Association of Consulting Engineers.

In its report, Transporting Australia’s Future, just published, the association says that Australia’s increasing infrastructure backlog sends a clear message that current policy will not fund the transport infrastructure the country needs now for a growing population and competitive economy. Consult Australia believes that its recommendations are a win-win solution for government, business and the community.

Some of the recommendations in the report, such as “full cost recovery” where transport users would be expected to pay the cost of their journey with no government subsidies, are controversial. Other proposals such as tax incremental financing (TIF) could, however, be more palatable.

TIF was originally conceived in the US as a means of ‘kick starting’ economically depressed areas by providing a source of funds to ‘front load’ major capital expenditures in public services and infrastructure. In the TIF model, property tax revenue increases attributed to the TIF program are temporarily diverted to pay for the infrastructure improvements in the TIF District. These property tax revenue increases, referred to as the “tax increment”, are used to repay government-issued bonds or privately secured loans which are used to “front load” the infrastructure. Bond holders and investors receive a stable, long-term and often tax favorable investment, and communities are able to spread large capital expenditures over a 20–25 year term.

Consult Australia says that properly timed and well-conceived government investment in urban infrastructure provides an essential catalyst to build and renew communities, and that the present methods of funding these improvements are failing to keep pace with the cost and volume of investment needed. It believes that tax increment financing offers a proven, equitable method of funding urban infrastructure, and should be considered by government, the public and the development industry in Australia.

Chief Executive Megan Motto said:

“This framework is a call to action for all governments to back new ways to increase infrastructure funding mechanisms, and to ensure Australia gets the transport infrastructure it needs."

“What we are asking for is ambitious, but achievable with the right leadership. What is required is a commitment from governments to an integrated approach."

“Current revenue sources for transport infrastructure (eg fuel excise, vehicle registration, tolls and parking fees), are not integrated, not service driven, do not reflect true costs, and will be reduced over time through greater fuel efficiency and diminishing oil reserves and fuel excise revenue.”

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