Congestion pricing, which charges drivers a user fee at peak times in overcrowded routes, can solve New Zealand’s shocking congestion woes, according to a new report launched this week by The New Zealand Initiative.

Transport experts consistently agree congestion pricing is the single most-effective way to deal with chronic traffic bottlenecks while providing incentives to increase the use of public transport.

Such efficiency features, including environmental gains, make congestion pricing a potential point of bipartisan support, too. In New Zealand, all major parties have long courted it as a suitable form of managing road use.

Further, there is a whole range of cheaper and more accessible technology from electronic tags to automatic plate number recognition to GPS on-board units.

So what is holding us back from solving the congestion problem, which costs more than $1 billion every year on wasted hours idling in traffic?

In a nutshell, we need political leaderships clearly communicating to the public about the benefits of pricing congestion costs, with lower socioeconomic groups usually benefiting the most.

Importantly, politicians must credibly commit from the start to not let congestion charges become “just another great big tax on everything.”

How it works

Congestion pricing is not a new concept, with close to 100 years of academic research and plenty of international case studies validating it.

In New Zealand, both the Tax Working Group and the Productivity Commission have proposed congestion charges as an efficient way to modify behaviour and improve environmental quality.

Although building more and better roads is a welcome initiative to increase average throughput volume, it is not the best strategy to reduce congestion. That means to build roads targeting peak capacity is simply not the best use of budget resources, particularly when road space on increasingly high-value public land will be underused most of the time.

Variable peak and off-peak rates are already part of our daily lives, from electricity bills and cinema tickets to hotel rates and public transport fares. The same logic should apply to roads.

By letting drivers face the costs of adding a vehicle on clogged roads, congestion charges can encourage commuters to find trip alternatives, such as other travel times, routes and transport modes. That would reduce the overuse of road services at peak times.

That is, instead of Soviet-style rationing of road space by widespread queuing, congestion charges would harness the power of markets to solve daily, and costly, road bottlenecks.

Public (mis)perceptions

The biggest hurdle to congestion pricing implementation is overcoming public fears about the new rules – and on that, politicians have to work harder to get the right message across.

A damaging and lasting myth about charging higher road user rates at peak times is they particularly punish low-income families. Nothing could be further from the truth.

The economics literature attests the overall distributive impacts of road pricing are small, with the majority of road users better off and lower-income groups benefiting the most.

First, low-income households are more likely than affluent ones to use public transport, and need not be directly affected by new congestion charges. Data shows those who value time (for example, businesses and high-income drivers) will bear most of the new user charges.

Second, while a few priced-out low-income drivers could be forced to use a less preferred travel mode, travel less, or depart at less convenient times, they would in return benefit from faster, congestion-free public transport commutes.

Third, low-income motorists can still benefit from a congestion-free drive on occasions when they place a high value on their time, such as being late for work, missing a doctor’s appointment, or facing late pick up fees at childcare.

Lastly, society as a whole, including low-income families, will benefit from higher productivity (and therefore higher wages) from more efficient road use and mobility.

Tellingly, follow-up surveys demonstrate public opposition across all the income spectrum is significantly reduced after congestion charges are implemented. As an example, public support for congestion pricing in the capital of Sweden, Stockholm, was below 40% before full implementation in 2007; five years later, public support jumped to about 70%.

As congestion reduces, drivers from all socioeconomic backgrounds become more receptive of proper pricing road use.

A recipe for success

There is one element of congestion pricing that New Zealand voters are right to be sceptical about, though. Namely, what to do with the (not insignificant) amount of revenue to be raised through new road use fees.

Faced with a potential windfall of hundreds of millions of dollars a year from new congestion charges, our politicians might be tempted to go on a spending frenzy, funding new cycleways, public transport subsidies, climate change actions – and, who knows, maybe an enhanced, beautiful waterfront too.

Not that these new spending items would not be in principle a good use of public resources but at least these should be discussed and assessed under the limits of the government budget. To directly fund them through congestion charges is to create a new money-grabbing tax under the pretext of caring for road use efficiency – and warranting voters’ suspicions against congestion charging.

It is certainly not helpful that NZTA defines congestion charging as “a tool with two main objectives: reducing congestion and raising revenue.”

Hence, it is of utmost importance that any proposal to implement congestion pricing in New Zealand be accompanied by a formal commitment towards revenue neutrality.

That means every net dollar raised through congestion charges shall be offset by, say, a dollar less through property rate collection or lower fuel taxes. (Of note, National has already pledged to explore “pricing mechanisms that will more efficiently manage the flow of traffic and are revenue neutral.”)

With those caveats properly addressed, New Zealand is well-placed to implement a comprehensive, world-class road pricing system based on decades of international experience and research.

But only if the price is right.

Dr Patrick Carvalho is a research fellow at The New Zealand Initiative and the author of The Price is Right: The road to a better transport system (2019).