There are two basic tasks governments have historically been very good at – collecting taxes, and thinking of interesting new taxes to collect.
So it was heartening to learn that the Victorian Government has rejected a proposal by its own Department of Infrastructure to levy a tax on cars in the inner city.
Sure, the streets of Melbourne’s CBD seem to be getting more and more congested. The Federal Bureau of Transport and Regional Economics estimated in June that congestion costs us $3 billion a year. At least we don’t have as many problems as Sydney does, where congestion is so chronic that watching traffic slowly crawl through tunnels is fast becoming a popular tourist activity.
However, we should be a little suspicious when after public servants have completed a long, careful study of a problem, the only solution they can think of is to take more money from the public. As Mark Twain famously said: “To a man with a hammer, everything looks like a nail.” To a bureaucrat, every problem looks like an opportunity to raise taxes.
But should congestion just be taxed away?
In principle, charging drivers to use busy roads at peak time isn’t a terrible idea. Driving into the city is essentially free. (Well, it is free if you ‘assume away’ – as the economists and bureaucrats promoting these taxes like to – the cost of petrol, the cost of parking, the cost of toll roads, and the cost of the car itself.)
People tend to consume more free things than they would otherwise do if they were asked to pay for them. If the government started giving away free beer, then there really would be a widespread binge drinking epidemic in Australia.
This logic suggests that if we started charging cars to enter the city, those individuals who were unwilling to cough up the money would use public transport or avoid going into the city at all. Fewer cars on the road means a higher average driving speed in the city, and, presumably, fewer commuters going postal before lunch.
That’s the idea, anyway.
But a congestion tax in Melbourne is one of those ideas that’s great in theory, and not so great in practice. The state government has already imposed a form of congestion tax – the $850 per year charge on long-stay car parks which they originally hoped would reduce the number of people who drive to work.
But if driving to work is now a lot less appealing, then car park owners and their investors haven’t heard anything about it. There are now over 200 more car parks in the CBD than there were before the tax was introduced.
Nevertheless, the car park levy hands $40 million dollars to the state government every year, so, as Roads Minister Tim Pallas so eloquently put it a few days ago: “The government sees no reason why that levy can’t continue to operate.”
New taxes always quickly find comfortable positions in government budgets. After all, from the perspective of Spring Street, $40 million is $40 million – who cares if the car park tax has failed to do what it was supposed to do?
A very high congestion tax would, no doubt, reduce the number of cars in the inner city. But, as London’s experience has shown, a reduction comes at the expense of city retailers, who have seen a 25% drop in business following the introduction of a congestion charge in that city.
And it would also add to the many, many taxes and charges the government already imposes on motorists.
Driving is already one of the most highly taxed activities a modern Australia can pursue. Simply purchasing a car can subject you to up to five separate taxes – stamp duty, the GST, registration, and, for those with slightly more exclusive tastes, the import duty, and the luxury car tax. Car insurance gets its own separate taxes, with its own stamp duty and a GST.
Finally, drivers have to pay the petrol excise tax, the GST, and soon the cost imposed by the federal government’s new emissions trading scheme.
That’s nearly 10 taxes just to back out of the driveway.
No wonder the state government has hurriedly tried to reject the idea of burdening innocent motorists with yet another punitive charge.
Just because you can imagine a tax, it doesn’t mean you should impose it.