PDF: 1832 KB - Bureau of Infrastructure, Transport and Regional ...


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BITRE | Working paper 74

If, as is likely, the high-yielding use of the funds varies over time and if the choice

of terminology depended on the use of the revenue, then the term applied to the

payment would flip-flop between the ‘tax’ and ‘charge’ depending on the end use of

the revenue raised. Hence, the use of the revenue is clearly not a sensible criterion

for distinguishing between a tax and a charge.

So how critical is the terminology Take the case of fuel excise for passenger

vehicles in Australia. This is widely regarded as a tax. The funds raised go directly to

consolidated revenue. However, fuel excise for heavy vehicles is technically a roaduser

charge and calculated accordingly (but still ending up in consolidated revenue).

It would not be unreasonable to regard as least some of the excise paid by passenger

vehicles as a road-user charge.

Alternatively (or additionally), fuel excise paid by passenger vehicles could be labelled

as a carbon tax, for which it serves as a very good proxy. 64 In this scenario the excise

would be serving the same role as a congestion charge in that it would be ‘internalising

an externality’. Even as a road-user charge it could be seen to be performing this role

since if the charge is not made on road users then they are shifting their costs onto

the community: externalising their costs. The corrective mechanism is a charge that

internalises the cost.

The situation is similar for the sulphur dioxide tax in the US. It is called a tax and

the revenue is presumably treated as any other tax revenue, yet it is a charge for the

environmental externality, just as a congestion charge is a charge for the congestion


This would indicate that the label is irrelevant from an economic perspective—it is

only the impact that counts. Once the congestion charge has served its purpose of

‘internalising the externality’ then it has performed its economic raison d’être.

From a political perspective, the matter is clearly different. If it was clear to the public

that a congestion charge was not achieving the objective of reducing congestion, it

would tend to be labelled as a tax. The challenge for policy makers would be then

to convince the community that the revenue raised was being put to good use—

whether by reducing other, even less popular taxes or providing community goods

or services.

Hence, the issue confronting those considering a congestion charge is whether the

balance of winners and losers would be acceptable to the public. 65 One indication of

the acceptability of a scheme is a comparison of the revenue raised with the efficiency

gain achieved—the Acceptability Index (BTCE 1996a, p. 28).

Acceptability Index

An Acceptability Index is a theoretical concept useful in shedding light on the

acceptability of a congestion charging scheme. The index is calculated as the ratio of

revenue raised to the efficiency gain from the scheme.

64. The current excise rate, $A0.38143 per litre, is equivalent to a carbon tax of around $A170 per tonne of CO 2


65. Drawing on public choice theory, the issue is more complex. Concentrated and significant winners could overwhelm

small and widely dispersed losers even for a project not in the community interest.


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