Of course it was done on the fly – I bet that MFE is SPITTING TACKS right now :p

Indeed – it would be preferable to charge for road maintenance by actually tagging vehicles. In fact it isn’t long before we will be doing that methinks.

However, when it comes to looking at raising funds for regional projects I still think a regional fuel tax will be MORE efficient than a national income tax – even if neither policy is perfect.

“It would at 10cpl give ARC over $100m a year to play with. Do you think they are trusted to be good stewards of that?”

I think this is an important question as well. However, in this case we should be trying to improve the accountability and quality of regional governance rather than increasing income taxes. If we can’t trust regional governments why give them any ability to spend in the first place?

Remember that I said what the money was spent on is actually a red herring. If the government is going to build the roads anyway the real comparison is between the petrol tax and a income tax.

Even if we think that the current petrol tax corresponds to the level that sets the social cost equal to the social benefit for fuel we can still say that a higher petrol tax is more efficient than a higher income tax – as long as demand for petrol is more inelastic than demand for labour.

Furthermore on a separate but related not, a regional fuel tax has another advantage on an increase in national income taxes – it is targeted. The spending on Auckland roads is a Auckland issue, not a “national” issue. As a result, it would be preferable to fund Auckland initiatives in Auckland – rather than getting farmers in Otorohanaga to pay …

For instance, the range of a truck with a full tank is about 500 kms. The incentive for liner traffic in an out of Auckland would be to fill up outside the boundary on the way in and out. This would then also impact sunk and future investments in fuelling facilities and hand a big cash reward to those who happened to be on the right side of an arbitrary line.

Note there is already a regional fuel levy. It gets charged equally across the country goes to councils based on where fuel is purchased, and is very small – a hangover from the 80s I think.

My view on this is that this decision may be driven by a distrust of local government’s ability to manage the large amounts of cash this might generate. It would at 10cpl give ARC over $100m a year to play with. Do you think they are trusted to be good stewards of that?

The petrol tax should be set at a level that cancels out the net negative externalities associated with vehicle use. It shouldn’t be affected by the desire to build public transport. There’s no way to know for sure but I doubt very much that the petrol tax is currently less than the cost of the net externalities.

Also, to the extent that externalities are made up of roading costs, Aucklanders are already paying more than their share as their roads are more congested so they are using more petrol per unit of roading.

Whether tax dollars should be spent on public transport at all is a separate issue. But there is no reason the money should come from petrol taxes.

Interesting – I can understand why central government would have its own interests at heart when forming policy 😉