Getting serious about road and tourism congestion

23 February 2018

The free market cannot solve New Zealand’s congestion problems, warns Tim Hazledine. Public policy intervention is needed.

Queenstown is crowded right now with stranded travellers unable to get home. As of last Friday (16 February 2018), every seat on every flight to Auckland for the entire coming week was sold out on both airlines.

For some Aucklanders forced to delay their departure from the Lakes District, an added compensation will be missing a few days of commuting to work on our congested motorways and arterial roads.

Congestion is the root cause in both cases: over-crowded roads and over-crowded tourist resorts. And, congestion is a particularly nasty business because it generates what economists call externalities – effects on third parties which aren't priced in to the decisions that cause the problems.

If I squeeze my way on to an already crowded motorway, my car will reduce the travel speeds of all the cars behind me. That is not priced in to my decision. Overseas tourists crowding in to our limited supply of natural assets — bush walks, ski fields, whatever — push up the price for locals, but no compensation is paid.

The free market cannot deal efficiently with these external effects: public policy intervention is needed.

What sort of policies? Well, there is actually some pretty low-hanging fruit waiting to be picked here. If you did manage to secure a seat out of Queenstown this week – I did not – it will have cost you $370. But if you wanted to travel at the end of March, there were $79 fares available.

If you hop onto the motorway in Auckland at 9.30am instead of 8.30am, you will probably get a clear run. So, if we could smooth out the peaks and troughs, we would alleviate congestion costs and make more efficient use of our roads, aeroplanes, and tourist attractions.

How to do this? We have known the answer for a long time: impose variable congestion charges, to give people an incentive to move their activities into off-peak periods. 

We also need to get serious about tourism congestion. We should levy a substantial tax on non-New Zealand residents flying into the country at peak periods.

How substantial? I have not yet done the figures, but I would not be surprised if the appropriate number was at least $250 per person, reducing perhaps to zero for off-peak arrivals: this is not to punish visitors or fleece them, but merely to price-in the actual external costs imposed on New Zealand residents by people piling in to our rather finite little country when it is already crowded.

What to do with the revenues raised? Here economists tend to part company with their fellow citizens. There is strong tendency to try to sell congestion charges politically by promising to spend the money on related infrastructure – more buses, more toilets for freedom campers, whatever.

This is woolly thinking. Money doesn't come with tags on it to indicate how it should be spent.

As an economist I recommend making congestion charges fiscally neutral. In the case of commuting charges, an equitable and efficient way of doing this would be to distribute the revenues as a rebate on the rates paid by all home owners and landlords in Auckland. This would not just benefit those who use the roads in peak periods, but also the much larger numbers who don't, and who thereby are doing their bit to alleviate congestion by not travelling at peak – for example, by working at home or living near their jobs, or walking or cycling into town.

What about disposing of the border levies on inbound travellers? Again, I would argue against ear-marking it on building more infrastructure, to be distributed freely to tourists.

If a gesture was required, perhaps it could be used to take half a per cent off the GST, thereby benefiting all New Zealanders – whether or not they want to travel to Queenstown.

Read the published article:

Tim Hazledine

Tim Hazledine is a Professor of Economics at the University of Auckland Business School.



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