Making sense of the Henry Review
While a new mining tax has caught the headlines in the wake of the review of the taxation system by Treasury Secretary Ken Henry, there are also implications for the trucking industry.
When the Henry Review was released at the beginning of May it received a lot of media attention, provoking plenty of column inches to be written about the plight of the impoverished mining moguls. This may be the headline recommendation but it is only a small part of what the Henry Review can and will do to change the structure of taxation here in Australia.
In fact, the Henry Review has paid quite a lot of attention to transport in Australia, and more specifically to freight transport and the effect taxation can have on the efficiency and productivity of the transport industry. The reverberations from this review look set to continue for several years to come as different aspects of the review influence taxation changes and changes in the taxation structure for industry.
In the initial burst of activity surrounding the publication of the report, the implications for road transport have been largely ignored. In fact when questioned, government spokespeople have played down any intention to follow through on Henry’s recommendations when it comes to changes in the way trucking is taxed. However, this review is aimed at providing a blueprint for development in the way taxes are levied for the medium and long term future and will profoundly influence the way the tax system is developed over the next 10 years.
Henry’s review acknowledges the importance of the transport industry to the Australian economy. Improving the efficiency of the way road transport uses roads is seen by the report as being a key direction of reform. Henry is looking for a relationship between trucking operators and the authorities that own the infrastructure to be more like a business relationship.
“Every industry depends on an efficient and competitive transport sector for the timely movement of people and goods between geographically dispersed centres and for access to domestic and global markets,” says the review. “Road transport is an input to almost all the goods and services we consume.”
At the core of the Henry Review is a desire by the Federal Government to simplify and rationalise the way individuals and businesses are taxed. Currently, there are a number of federal and state taxes levied on a wide range of items and activities which have been introduced in an ad hoc manner over the years, as and when State and Federal Government revenues required. The vision is to create a much more rational system which will give incentives to business to become more efficient and productive and to direct the revenue created by the new forms of taxation into the right spending initiatives.
The report looks to abolish many of the more complicated taxes and where necessary replace them with a more rational substitute. The idea of a ‘user charge’ to replace some aspects of taxation is regarded as a good idea in the review. This is the main area in which the review is likely to affect the trucking industry.
The review wants government, when it is providing a service, to act more like a business. One of those services which will come under the microscope will be transport infrastructure. Henry suggests the trucking industry should be going down the route of load/distance charging where operators pay for the distance they travel carrying a particular mass, on a particular road. This is seen by the review as being the most rational way to charge for road use and the best way to make sure funds to repair and improve the infrastructure come from those who are generating the road wear.
This suggestion comes on top of the ‘Road Reform Plan’ process currently being run through the Council of Australian Governments. This is investigating the future direction of heavy vehicles charges and is actively assessing the feasibility of load/distance charging. It was expected to produce a report in December 2011. Henry acknowledges this investigation and suggests accelerating the process to bring it forward.
The idea of a road user charge has been mooted several times in recent years often in connection with schemes like the Intelligent Access Program (IAP) enabling the monitoring of trucks, recording their weight and the routes over which they travel. There has been stern resistance to the idea as the high pricing and impracticability of the IAP could be forced upon trucking operators who have little use for the system and could not afford it.
The recommendations being made by the Henry Review must be of serious concern to the trucking industry. With impetus coming both from the tax review and from the COAG investigation towards some form of road user charge, it is clear a change in the way revenue is raised from the trucking industry is on the cards. The implications of the changes could start to affect road transport by as early as 2012 but probably before 2014.
At the same time as asserting heavy vehicle charging should ensure trucking operators pay their own specific cost and no longer cross subsidise other operators, the review also rejects the Australian Trucking Association position of loading road user tax onto fuel excise while reducing registration fees to a nominal amount ($400). The ATA recommendation to the Road Reform Plan committee envisages two levels of fuel tax rebate: one for smaller trucks and another for heavy duty.
The Henry Review makes it clear, “Current road tax arrangements will not meet Australia’s future transport challenges. Fuel tax and other transport taxes are not an efficient or equitable means of financing general government expenditure…The costs of road wear caused by heavy vehicles…cannot be efficiently priced through fuel tax.”
The report ignores suggestions like those made by the ATA and suggests increased fuel tax will be inequitable precisely because the rate of fuel tax decreases proportionately as vehicle mass increases. Henry is clearly pointing Treasury away from looking to fuel tax alone to create an equitable road user tax.
Where the Henry Review does strike a chord with trucking operators is in its recommendations about the relationship between any road user charge and infrastructure spending. It calls for the allocation of revenue from road wear charges to go to the owner of the affected road. Put simply, revenue raised from trucks using council owned roads in New South Wales should go directly to funding repairs and improvements on council roads in NSW.
When it comes to how the road user charge should be levied, the Henry Review does recognise the very expensive option of fitting every truck in Australia with some sort of IAP device is impractical for a large proportion of the fleet. The review comes up with a compromise which could be available to operators based on some form of self-assessment, recording distance traveled, mass and which roads were used.
Although this solution would alleviate some of the pain of fitting expensive tracking equipment into trucks, it would also introduce a two tier element into the scheme. There is also the danger of both operators and the department charged with levying a tax being overwhelmed by a snowstorm of paper reports or a deluge of data from computerised reporting systems.
It is when Henry comes to the sticky problem of competition between rail and road that the proposed road user system comes particularly unstuck. If a truly equitable road user charging system is introduced, the highways with particularly high traffic levels will be relatively inexpensive to use for trucking operations. The high number of trucks using the road will share the expenditure required to maintain it.
These high-volume routes also tend to be those which compete directly with intercapital rail routes. The Henry Review recognises a fair road user charge system could make road transport even more competitive with rail transport than it already is. As a result, the review recommends a two tier road user charge with an arbitrary extra amount levied on those routes where trucks compete directly with rail, to even up competition.
This suggestion opens up a can of worms for the Henry Review. The equitable nature of a blanket road user charge is compromised if the rates are artificially skewed to subsidise competition from rail. There is also the issue of freight moving from regional centre to regional centre using these major freight routes and being penalised even though they are not competing directly with any rail freight service.
The recommendations from the Henry Review represent a major challenge to the Treasury, the tax system, the road authorities and the trucking industry. Changes are afoot and within the next five years the taxation landscape facing trucking operators is likely to look very different to the one we currently have. There is no doubt the current situation has serious flaws and needs a radical shakeup. What is at issue here is what kind of shakeup it receives.
“We are going to continue to ensure the COAG Road Reform Plan committee understand the problems with the mass/distance/location pricing model proposed by the Henry Review,” says ATA National Manager Government Relations & Communications, Bill McKinley. “Secondly, get them to understand the advantages of going with a more simple system which addresses the problems with the existing model without throwing it out entirely.”
Henry Review type reforms, unmitigated by considerable trucking industry input, could make life very difficult for road transport operators. Following the publication of the report there is a window of opportunity where the trucking industry will need to lobby hard to ensure the charging regime for trucking is no worse than it is today, and if we are lucky, it may be more equitable and an incentive to improve productivity and performance.
“This refom process has the potential to impact on how much you pay, how you pay it, where the money goes and what that means in terms of your road,” says Bernie Belacic, NatRoad CEO. “If it fails, you will end up with the current scenario, which from a trucking industry perspective is unacceptable because our charges will continue to increase ad infinitum.”