Traffic jams and road congestion in Australia have risen at an alarming rate, which has also increased the costs of transport for the commuter, and city dwellers. It takes more time to move around the city because of clogged roads, a fact that has pushed the costs to over $16 billion annually. Citizens now have to pay almost a third of that amount as they strive to get to work, access services, and access education. The increment in time used to travel to work thanks to congested roads have an impact on the economic aspect of city dwellers, and those working in large cities. Concurrently, an increment in time spent travelling increasing the fuel costs by over 80%, a factor that translates to lifestyle changes to adjust to the rising cost of travelling. Three options could reduce the social costs associated with congestion of roads. One is the introduction of a congestion tax, which translates to reduced road usage, and overall reduction of the costs associated with the congestion.
Key words
Market failure, Private Marginal cost, Social Marginal Cost, equilibrium
Road Congestion in Australia
Traffic jams and road congestion in Australia have risen at an alarming rate, and that translates to high costs for the commuter and city dwellers. It takes more time to move around the city thanks to clogged roads, a fact that has pushed the costs to over $16 billion annually (Farr, 2015). The common citizen, the daily commuter has to pay almost a third of this amount to get to work, access services, and access education. The rising costs have an impact on employers too who have to pay their workers more to enable them to afford either living in the city or travelling to and from the city every day. According to Farr, the daily travel time for people working within the city has continued to increase over the years and now stands at 85 minutes (Martin " Thornton, 2016). The increment in time used to travel to work thanks to congested roads have an impact on the economic aspect of city dwellers, and those working in large cities. Concurrently, an increment in time spent travelling increasing the fuel costs by over 80%, a factor that translates to lifestyle changes to adjust to the rising cost of travelling. Ultimately, road congestion is not only frustration to road users; it also affects their economic and social lives.
Road congestion in Australia as a market failure
It is important to review what it means when a certain market fails. In some instances such as what is happening in Australian roads, the quantity of output of the free market becomes less or greater than the level of output that is socially optimal (Joshi " Mahmud, 2016). At that point, then it is likely that the free market will realise too little or too much of a certain good. The situation in Australia produces positive externalities of consumption because road congestion benefits private users, but raises the costs for the society as a whole (Snyder et al., 2015). The following figure (graph 1) illustrates the spillover costs that will be incurred by the society as a result of road congestion.
Graph 1: Road use in large Australian cities
S/user
Number of road users
The graph above shows that the private demand for road use and the marginal cost of road use is at equilibrium. However, the equilibrium for above does not reflect on the social marginal cost of road use.
Graph 2 social marginal cost of road use
S/user
Number of road users
Graph 2 above displays the value increment of the cost that the society incurs as a result of road use in Australian roads. The graph shows that that as a result of the road congestion, the society as a whole will have to incur more costs, shown by the increment of social cost. In this case, the public will have to incur more if the present condition and demand for private road use prevail. The private marginal cost and demand remain at equilibrium because people have the option to either stop using their vehicles, turn to other alternatives such as public transport, or move to more affordable places (Carbaugh, 2008).
Critical Analysis
The situation in Australia is not farfetched compared to other countries across the world (Eliasson, 2012). Various alternatives can be implemented to shift the market to the effective equilibrium, where the social marginal cost and the private marginal cost align (Coglan, 2016).
Implementing a Congestion Tax
The first option of reducing the social cost increment is by introducing a congestion tax. According to Martin and Thornton (2016), the introduction of a road congestion tax could work in reducing congestion in major cities, thanks to a study carried out on Melbourne road usage. The study tested the usage of three charges, a flat charge based on distance, a time charge implemented according to the time the driver is using the road, and a constant charge where drivers had to pay per kilometre and an extra charge if they entered the inner city.
Traffic jams vary with time. During rush hours, roads seem to be congested more compared to the other times of the day (Brisbane City Council, 2018). The peak hours are charged more, and as a result, drivers are discouraged from using the road due to the high charges that they have to pay. Such peak hours include morning from 7 am to about 9 am when people are rushing to work, and from 3 pm to 7 pm when they are getting to their homes. The introduction of the charges showed that driving patterns changed as many drivers were discouraged from driving during peak hours (Cramton et al., 2018). The introduction of a congestion tax could very well be the solution required to reduce traffic congestion, especially during peak hours.
Taxation in many ways distorts people’s attention from quality decisions (Manners, n.d). People try to seek cheaper alternatives when dealing with taxation issues, for example, payroll tax may discourage companies from hiring more people as needed. However, high taxes on cigarettes, for instance, do not affect anyone as it is a measure to prevent cigarette smoking. Similarly, it is evident that such taxes are to benefit the social optimum. The environmental impact of carbon emissions also justifies the high tax on carbon. The social optimum is achieved by implementing these taxes, rather than affecting people’s way of life, economic situations, and social lives (Manners, n.d). Congestion tax could be very well the best alternative to decongesting roads, and to help the government raise funds for other developments as well.
Implementing the congestion tax would help discourage drivers from driving at peak times, when the tax is high, thus reducing the traffic congestion (Department of Infrastructure and Regional Development, 2015). The figure below shows how an optimal road use will be arrived by introducing the congestion tax.
S/user
Number of road users
Public Transport
The second best solution to easing road congestion in Australia is using public transport. Public transport is subsidised and does not directly link to the cost of congestion in Australia (Paramita et al., 2018). As a result, it does not present a pattern that can be used to analyse the reduction or increment of congestion costs. These subsidies should remain in place even if the congestion tax were to be implemented, to maintain equity. The case would be different in case there were no subsidies for the public transportation systems. If so, it would require improvements in the public transport management and regulation (Productivity Commission, 2017). However, there would be a rise in transport as a result of the rising demand. However, high transport costs would also encourage private investment in public transport, which would eventually increase supply and reduce demand, thus reducing the cost of public transport altogether. Nevertheless, public transport would not have a quick and direct impact on the congestion crisis currently bombarding major cities in Australia.
Transport infrastructure
Transport infrastructure is another alternative that would be very beneficial in reducing road congestion. However, new infrastructure costs money, and that translates to taxes that also increase the overall social burden. The congestion pricing tax could be beneficial here as the funds could be diverted to the construction of new infrastructure (Manners, n.d). As a result, that would also be the best way to have new roads and railways at no cost to the taxpayer. If the congestion pricing were implemented, the new revenue would be created that would be useful in making infrastructure improvements. The new alternative roads would be useful in reducing congestion, and also the cost of congestion tax drivers have to pay when using main roads during peak hours.
Conclusion
Traffic jams and road congestion in Australia have risen at an alarming rate, which has also increased the costs of transport for the commuter, and city dwellers. It takes more time to move around the city because of clogged roads, a fact that has pushed the costs to over $16 billion annually. Citizens now have to pay almost a third of that amount as they strive to get to work, access services, and access education. Three options could reduce the social costs associated with congestion of roads. One is the introduction of a congestion tax, which translates to reduced road usage, and overall reduction of the costs associated with the congestion. Figure 3 shows in detail how the congestion tax covers the increased social cost of transport and the economy as a result of congestion. Other options include creating more transport infrastructure and using public transport which is less convenient compared to the congestion tax.
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