Congestion pricing: why and how

15 Apr 2010 article

Congestion pricing is looking increasingly likely as a tool to both reduce over-crowding of roads and provide a revenue source for governments. In NSW, the 2003 Parry Inquiry recommendations, accepted by the government, were to consider implementing electronic road pricing for congestion within five to 10 years. The Henry tax review, currently being considered by the Australian Government, is also expected to support congestion pricing. Congestion pricing has been implemented in various ways in other countries, such as the UK and Singapore.

In theory congestion prices would change depending on the impact of each person’s journey on other road users. This has many positives, replacing taxes that distort incentives with one that improves them.

In practice, congestion pricing will be more limited, in order to manage the costs of implementation. The nature of its application and the range of other policies used to support it will determine the extent to which congestion pricing achieves its theoretically available benefits.

Congestion pricing has broader implications for public transport, new infrastructure and other government taxes. These would have to be considered as part of its introduction. This note addresses the why and how of congestion pricing and the implications that introducing congestion pricing would have for public transport and for other government taxes.

Listen to an interview with Phil Manners on congestion pricing.

View report online [pdf, 120KB]