A kilometre-based road user charge system:

Proof of concept study

Johann van Rensburg

Stephan Krygsman

What is the fuel levy?

• Definition:

o It is a indirect excise taxo paid at the pump on fuel sales o at a rate of 255 cents per litre of petrolo and a rate of 240 cents per litre of diesel (April 2015)

• Note – there is a difference between a tax, a charge and a toll

o A tax can be used for anything including general government expenditureo A charge covers the cost of a specific service renderedo A toll is used to pay for the specific infrastructure used

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What is the fuel levy?... (2)

• Contribution:

o 5% of national tax revenue – R48,5 billion (2014 / 2015)

o 4th highest income stream

35%

26%

20%

Fuel levy5%

National tax revenue (2014 / 2015)

Personal income tax VAT Company income tax Fuel levy Company income tax (secondary) Custom duties Specific excise duties Other3

What is the fuel levy used for?

• Introduced in 1935, for the construction of national roads

o National Road Fundo 3 pence per gallon o £1,3 million in 1936

• Dedicated (ring-fenced) road use fund between 1983 and 1988 only

o Only a few countries currently have a dedicated road fund - America

• Since 1988 fuel levy used for:

o Construction and maintenance of roadso Support of public transport…o General government expenditure (also found internationally)

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What is the fuel levy used for?... (2)

• The argument for using the fuel levy for general government expenditure programmes:

o The fuel levy is a taxo High income stream for governmento Government will not have control over funds if fuel levy was ring-fenced

• If fuel levy was still ring-fenced:

o May generate insufficient funds o May even lead to wasteful road constructionso Hamper other important social development objectives

o NB - Good roads are not a substitute for poor schools, bad hospitals or poor public transport

“A physician would never think of expressing the general state of health of a patient by one single scalar indicator. He knows that good lungs are not a substitute for bad kidneys… Why cannot the engineer / economist… also shift… to that way of thinking.” – János Kornai, 1979

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Is there a problem with the continuing use of the fuel levy?A. Becoming unproductive – less fuel is being sold per vehicle per annum

o Technological and societal trends

o The result is less income generated per vehicle

o But there is an increase in the registered vehicles population and total vehicle kilometres travelled

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Productivity…

Period: 2000 – 2014

o Registered vehicle population grew by 68%o Vehicle kilometre travelled grew by 45% o Fuel sales grew by 40%

Period: 2015 - 2050

o Registered vehicle population grew by 479%o Vehicle kilometre travelled grew by 262%o Fuel sales grew by 139%

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Productivity…

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100%87%

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2000 2010 2015 2020 2030 2040 2050

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Is there a problem with the continuing use of the fuel levy?... (2)

B. There is an argument / belief that vehicles don’t pay for actual road use (road use cost ≠ fuel levy paid)

o Cost that should be recouped:

Road construction and maintenance cost

Congestion cost

Environmental cost

Social cost

NB - We do not recover all these costs

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Is there a problem with the continuing use of the fuel levy?... (3)

C. It is a regressive tax as opposed to progressive tax

o Thus increasing the tax will hurt poorer road users

D. Road construction cost increased

o driven by inflation and scarcity of resourceso and increased labour cost

E. Government needs to spend more on roads than generated from road charges

o R48,5 billion vs an estimated R100 billion road maintenance backlog (Wittman, 2010)o Shortfall – funded from municipal rate taxes and transport grants (Freeman, 1982)

Problem isolated to South Africa?

• NO – other countries also experiencing a decline in fuel levy revenues

• America, European nations, New Zealand and Australia

• These nations actively engaged in looking at alternatives

• How can South Africa generate additional income to make up for the shortfall?

o Identify, explore and test a viable and operationally feasible alternativeo That addresses many of the problems associated with the current SA fuel levy

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What transportation financing solutions exist?

• Traditional:

o Fuel taxes

o Sales taxes on fuel purchases

o Vehicle registration fees

o Traditional bond proceeds

o Tolls

o General fund expenditure – income taxes, sales taxes, property taxes

o Other – inspection fees, driver licence etc.

South Africa uses all these methods in some form, with the fuel levy contributing the highest revenue from road users - about 80% (House of Commons, 2015)

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What transportation financing solutions exist?... (2)• Non-traditional:

o Grant anticipation revenue vehicle – debt financing bond or lease

o Private activity bonds – debt financing for highway infrastructure

o Government credit assistance

o Public-private partnership – collaboration on a transportation project

o Other – traffic camera fees, emission fees, etc.

o Congestion and cordon pricing

o Kilometre-based road user charge

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What transportation financing solutions exist?... (3)• Problem with methods (excluding kilometre-based and congestion pricing):

o Stimulate bad travel habits

A tax should change bad behaviour to good behaviour

o Don’t address problems associated with fuel levy

Small contributions to fund

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What transportation financing solutions exist?... (4)• Two options remain:

o Congestion charge (cordon)

o Kilometre-based – our focus is on this

• It addresses the problems associated with current fuel levy system

1. Is not influenced by technological and societal trends

2. Can be a progressive tax

3. Generate more income to keep up with road construction costs

4. Is taxed for actual road use

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What transportation financing solutions exist?... (5)• Furthermore:

o It can supplement, complement and even in the future replace the fuel levy – provide sufficient incomeo It is a policy sensitive alternative whereby if you change the tax, it impacts on road user’s behaviouro It is in theory at least, relatively easy to implemento It can inform road users of the road user costs they pay through an itemised road user charge monthly

bill

• So how will this work?....

o America – 26 states

o Europe – Switzerland, Austria, Germany, Hungary, Slovakia, the Czech republic and Poland

o France, Belgium and Russia

o New Zealand

o Developing countries?....

Kilometre-based road user charge system

• Many configurations – 11 key technical components

1. The purpose of implementationo Reduce traffic congestion, excessive road wear , harmful emissions

2. Which vehicles to be chargedo Type, weight, number of axles, vehicle occupancy

3. Technological devices for measuring kilometres travelledo Odometer, on-board device, GPS enabled, smartphone

4. Communication of the vehicle travel datao DSRC, GSM, chip cards

5. Type of road to be chargedo National, provincial, municipal, CBD

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• Many configurations – 11 key technical components

6. Time of day to be chargedo Peak, off-peak

7. How much should be chargedo Variable rate, flat charge, amount?

8. Invoice billingo Monthly, inform the road user, manage account

9. Enforcement of the systemo Prevent tampering with device, fixed or mobile checks

10. Protection of privacyo No location data recorded, third party, device with privacy safeguards, legislation

11. Value-added serviceso Automatic parking charges, tolls, insurance

Kilometre-based road user charge system… (2)

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Testing…

• Small scale proof of concept study in November 2015

o vehicle tracking study

o 1 vehicle

o 1 week

o configuration of selected technical components

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Testing… (2)

• System design:

1. To recover infrastructure cost incurred on road system by vehicles

2. All self-propelled vehicles – includes electric / hybrid / bio-fuel vehicles will be charged in addition to paying the fuel levy

3. Fuel sales for other purposes than road use will still be taxed via the fuel levy system

4. Vehicle equipped with an removable on board GPS enables unit (to record longitude and latitude data via GPS satellite signal)

5. Unit equipped with GSM technology (wireless data transfer through cellular network from device)

6. Daily vehicle odometer checks

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Testing… (3)

• System design:

7. Data send to third party tracking company for database administration and privacy control

8. Web-based interface to show trip detail / map to road user.

Web-based interface

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• Feedback to the user:

• Users must be able to revise their travel behaviour and assess their monthly invoice information

• Enable them to see how and where they travelled

• Can be incorporated via a web-based interface

• Contribute to them “trusting the system”

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Testing… (4)

• System design:

9. Vehicle location data send to back-end system to calculate charge per kilometres travelled

Kilometre-based road user charge cost structure

Vehicle class Gross vehicle mass (kg)Kilometre-based road user

charge per km

Motorcycles 180 15,88c

Motorcars 1 200 23,10c

Minibuses 2 400 23,10c

LDV's - Bakkies 2 100 23,10c

Buses 14 800 92,94c

Trucks 14 200 – 49 000 138,03c

Other & Unknown 14 200 89,70c

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Testing… (5)

• System design:

10. Road user received itemised billing invoice for money due

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Kilometre-based road user monthly invoice

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(Van Rensburg and Krygsman, 2015)30

Conclusion

• Aim was to:

1. Identify,

2. Explore,

3. Test

• a viable and operationally feasible alternative

• to the South African fuel levy

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Conclusion… (2)

• Recommend:

o Investigating the possibility of supplementing or replacing the fuel levy

o Kilometre-based road user charge

• Not influenced by technological or societal trends

• Not dependant on fuel sales

• Can equip vehicles for future initiatives such as congestion pricing

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Conclusion… (3)

• Kilometre based road user charge system:

o Many configurations exist

o Comprising of various key technical components

• Vehicles charged

• Devices to measure distance

• Privacy etc.

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Conclusion… (4)

• Vehicle tracking experiment:

o Operationally feasible on a small scale

• Technology exist

• Easy to use

• Data accurate

• Data secure

• Invoice constructed with ease

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Conclusion… (5)

• Future research:

o Operationally and technically feasible on a larger scale

o Policy, social and equity concerns

• Variable road user charges

• Road users response to acceptability and experience

Thank you

Questions?

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