Should new freeways be tolled?

In a follow up to last week’s article on the recommendations of a government taskforce that users should pay for all new toll roads and infrastructure financing, Alan Davies of Crikey.com also explored whether new freeways should be tolled.

Davies claims that the argument for tolls is straightforward – they provide the ultimate test of the relevance of a project – confirming whether users are prepared to pay the full cost of providing and operating the facility. If they are, the project is not only warranted in financial terms but generates a cash revenue stream.

This also allows the private sector to carry the risk instead of state governments who are concerned about their credit ratings. The private investor allows the project to take place, and wear the costs if the estimates are wrong – as in recent examples such as the Clem7 road tunnel in Brisbane, the Cross City Tunnel in Sydney, and both the Brisbane and Sydney airport rail services.

Tolling new roads also means state governments can reserve their spending for projects like public transport facilities that don’t usually generate the sorts of returns attractive to the private sector. Another benefit is that tolls effectively price road space (albeit imperfectly) and thus moderate demand for both the new facility and related parts of the overall network.

The report of the Infrastructure Finance Working Group not only advocates greater use of user-pays charges, it also recommends the Federal Government make infrastructure grants conditional on the states’ implementing initiatives like tolling and asset sales.

It appears that freeway tolling makes sense in every way. Key to getting it right, however, is balancing the demand for the infrastructure with the fee that people are prepared to pay. After all, it’s very expensive to build a state-of-the-art tunnel or freeway that no-one uses.

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