Abolishing Qld's fuel subsidy: a cure for traffic congestion and other ills?

In the unlikely event of reallocation of the money to road and other transport infrastructure, would it eliminate congestion and associated emissions? It most certainly will not.

As the Bureau of Transport and Regional Economics has explained, elimination of traffic congestion is not a sensible policy objective, because the social costs would exceed the social benefits. The appropriate objective is to reduce congestion to the optimal level. Reducing congestion any further adds more to social costs than to social benefits.

The optimal level of congestion cannot be attained just by increasing transport expenditure. Adding to road capacity induces demand for road space, as well as increasing supply. Therefore, effective demand management is necessary to ensure existing and new road space is not overused.

The most effective demand management tool is comprehensive, variable, congestion pricing. However, the Queensland government and Brisbane City Council have chosen not to use this measure so far.

Yet, demand management tools used in south-east Queensland to induce drivers to switch from single-occupant cars to other transport modes have been relatively ineffective. These disappointing measures include subsidies of around $600 million per year for public transport. Yet, Cr Hinchcliffe wants to add $450 million of fuel subsidy money to existing hand-outs to public transport, and Greg Hallam and Allan Layton want to spend some of the money in the same way.

Why has the fuel subsidy been singled out for attention when the Queensland government provides substantial subsidies to a wide range of activities, including rural water supply, new industries establishing in the state, and public transport?

There appear to be three reasons. First, the fuel subsidy scheme is much more transparent. Second, it has received much more attention because of fuel price cycles. Third, key politicians and transport advisers appear to have a strong ideological attachment to public transport and an aversion to cars other than their own.

One question remains to be answered. Why has the Commonwealth been allowed to escape criticism regarding underprovision of infrastructure and services, and the problem of traffic congestion?

While state and local governments have nominal responsibility for provision of most infrastructure and services, the Commonwealth controls the main sources of tax revenue. Hence, state and local governments depend on grants that are inadequate to meet their responsibilities.

The Commonwealth refuses to give back more than 16 per cent of fuel tax revenue for road infrastructure, and will not cut the fuel tax rate to make room for congestion pricing by state or local governments. So while special interest groups try to bludgeon the Queensland government into reallocating fuel subsidy monies in accordance with their particular interests, the Commonwealth laughs all the way to the bank.