1. FINANCING ROAD INFRASTRUCTURE
Presentation to Roads Funding Workshop
Presenter: James Archer| Director: Transport and Human Settlements, National Treasury | 7th March 2018

2. Public sector revenue sources
General Taxes
Specific taxes
User charges
General taxes are collected with no link to whether the taxpayers are the beneficiaries of the relevant service
Specific taxes/duties that is tied (loosely) to actual/perceived beneficiaries of the service or the source of the externalities.
Specific taxes include sin taxes, fuel levy etc
In the context of sales and use taxes, these are sales taxes confined to a particular commodity or a limited number of commodities, as distinguished from general sales taxes which apply to goods or commodities in general. Thus, sales tax imposed on cigarettes and tobacco products and gasoline and other petroleum products are selective taxes.
User charges usually directly applied to beneficiaries of the service or producers of the negative externality
Decision to finance is heavily influenced by about the burden of sharing and practicality
If good/service is a pure public good, then funded through general taxes
If there is an identifiable group that benefits or causes negative externalities, then the case for a specific tax or user charge is made

3. Considerations for selecting form of taxation for roads
Compared to needs
Stability of revenue over time
Response to inflation
Potential for needed increases
Adequacy
Fairness with respect to the ability to pay and benefits received
Distribution of wealth, vertical equity to ensure that those with a greater ability to pay for services do so
Equity in relation to geographic area
Equity
In relation to paying costs imposed on others
Better decisions on travel and investment
Creating disincentives for unnecessary travel
Enabling economic growth
Efficiency
Administrative ease
Compliance and enforcement costs, including evasion of cost potential
Impact on investment
Simplicity

4. 1. Revenue adequacy
Taxes should be just-enough to generate revenue required for provision of essential public services.
Considerations:
Elasticities of demand and revenue buoyancy
Fuel levy revenue estimates for 2017/18 adjusted upwards to R71.3 billion, but was adjusted downwards in 2016/17 and 2015/16
Fuel tax revenue not buoyant
Slow GDP growth and technology advances means growth in fuel sales are less
Source: Department of Energy
Budget estimates at main budget over the next 3 years
Consolidated road infrastructure: R156.9 billion
Buoyancy- how stable is the source of revenue? is it so volatile that in some years we have a surplus and other years a deficit compared to the need?
Source: Budget Review, 2018

5. 2. Equity considerations
Geography
Should all tax payers or road users pay for infrastructure improvements in a certain region, or only those that use it?
Ability to pay
Should we differentiate between high income and low income earners?
Or based on vehicle type?
Higher income road users drive new vehicles with fuel efficient technology
Lower income road users drive older vehicles, use more fuel per kilometre travelled than new vehicles
Heavy vehicles damage roads more the light vehicles
Tax incidence and burden
Eg: tax freight vehicles, consumers of end product pay…?
Who pays?
Who benefits?

6. 3. Efficiency considerations- ito form and level of taxation
The economic value of transport infrastructure
Households and firms ability to access opportunity/ markets/activity
Urban form is shaped by investments in transport infrastructure
New road or a public transport corridor influences:
Locations, intensities, types of developments
Value of land
We need to acknowledge that;
Econ value- if the roads add value to society, there is an opportunity to charge for it
Urban form- if there is a future benefit, capitalise on it to fund the project

7. 3. Efficiency considerations- externalities
Road usage has externalities
Decision by road user to drive does not consider the impact on other road users (social costs): congestion, the environment, the likelihood of an accident
If costs are not internalised, creates an incentive where the benefit of additional trips to user is lower than the additional costs to society;
Distorts the choice of mode in favour of private cars
Encourages excessive use of infrastructure
Inadequate provisions for maintenance
To change behavior, it is important for road users to internalise these externalities by pricing it in!
Marginal benefit should be equal to marginal cost to society

8. 3. Efficiency considerations – cost of urban sprawl
When road usage not priced properly, investments in highways encourages private transport. This encourages urban sprawl
Costs to municipalities and households for basic services
Excessive cost of public transport
Externalities arise- congestion, accidents and pollution inevitable
So efficiency consideration on what type of tax and what level of tax to use must consider:
The costs imposed on others
Better decisions on travel and investment
Creating disincentives for unnecessary travel
Enabling economic growth
Source: FFC, 2011

9. 4. Simplicity Costs of administration for general taxes are the lowest
Cost of administration are also low for some specific taxes, like the national fuel levy
SARS collects at source e.g. the refinery
Few sources to collect from makes tax evasion unlikely
Transaction costs for tolls relatively high
Each transaction is recorded and billed

10. Fuel levy or user charge
General Tax
Specific tax: Fuel levy
User charge
Adequate  
Equitable
Efficient
Simple
General tax- already provides funding through ES, CG’s etc.

11. Conclusion
Whatever the type of taxation chosen, and efficient road pricing should;
Level the playing field for public transport
Allow for road users to internalise the externalities such as congestion and pollution
Ensure that only those who benefit from the improved roads pay for it
Ensure that those who cause the most damage on the road pays for it
Allow for the exemption of some users such as public transport operators and the disabled

12. Thank you