Given the findings of the Independent Review, and particularly the highly controversial Interim Report (which essentially called for the NSW Government to legislatively override existing toll concession agreements, causing heart attacks at Transurban and among its investors), the recommendations to finally come out of this review are critical. However, equally critical is what, if anything, the NSW Government is going to do in response.

It's worth noting the wealth of data and research compiled in this review, which should help inform discussion and debate about tolling in Sydney for some time.

42 recommendations were made, and I wont repeat them all in detail here. 

However, a key part of the review work was to model the impacts of models of reform that were presented. It's critical to understand that the report recommends "moving towards" the Network Toll Restructure and Reduction model, not necessarily the details of that model exactly, but does not recommend the Network Toll Restructure Model.  Therefore, I will focus on the former.

These models are:

• Network Toll Restructure model: Introduction of standardised network tolls and including application of two-way tolling; and

• Network Toll Restructure and Reduction model: This uses revenues generated from two-way tolling, peak pricing and other sources to reduce tolls where appropriate. A declining distance approach with fixed infrastructure charges is proposed.

The effect of the latter was modelled as meaning:

• 78% of motorists are the same or better off, 17% would pay $3 + more per trip.

• Main losers are those using the Sydney Harbour Crossings

• Western Sydney motorists get some relief as longer trips are reduced in cost

The following table lists the current tolls in Sydney (all in Australian Dollars ~ US$0.66-A$1.00:

It's striking that the obvious impacts on reducing traffic are on the Harbour Crossings and Eastern Distributor, as introducing northbound tolls on the Harbour Crossings and southbound on the Eastern Distributor sees some redistribution of traffic to the west, primarily on the untolled crossing at Iron Cove Bridge and Gladesville. There is also reduction on some streets in the CBD and some parallel routes to the M5, as lower tolls make some toll roads more attractive that local streets for some drivers. The M4 and M5 in particular see much higher traffic volumes. It's unclear the impact on congestion overall, as this did not include any peak/off-peak pricing on a network basis.

This table produced with the press release accompanying the Independent Toll Review (PDF) illustrates the effects on some toll trips:

The Toll Restructure and Reduction scenario has significant impacts on all of these examples, notably halving the cost to drive from Campbelltown to the CBD, but more than doubling the price from North Sydney to the airport. 

Before summarising the other recommendations, it is worth going over in some detail the proposed tolling principles (the first set of recommendations).

Tolling principles

These principles are recommended to guide policy measures to reform tolling of existing roads and should inform the implementation of tolling on new roads.

The Tolling Review considered the set of tolling principles agreed in 2014 which were as follows:

1. New tolls are applied only where users receive a direct benefit. 

2. Tolls can continue while they provide broader network benefits or fund ongoing costs. 

3. Distance-based tolling for all new motorways. 

4. Tolls charged for both directions of travel on all motorways. 

5. Tolls charged reflect the cost of delivering the motorway network. 

6. Tolls take account of increases in expenses, income and comparable toll roads. 

7. Tolls will be applied consistently across different motorways, to the extent practicable, taking into account existing concessions and tolls. 

8. Truck tolls at least three times higher than car tolls. 

9. Regulations could be used so trucks use new motorway segments. 

10. Untolled alternative arterial roads remain available for customers. 

The review found that these were rather general and didn’t include some key issues, such as the proportion of costs that should be recovered from tolls relative to taxpayer funds. There was little recognition of the need for tolls to vary by time of day, plus although some of the principles (tolling in both directions) are valid, they were not always applied (see the Harbour Crossings and Eastern Distributor).

The review proposed a set of modified principles with one set about the level and structure of tolls and another on consistency with competition policy.

Proposed New Tolling Principles

On the level and structure of tolls:

• Toll setting should be guided by the objectives of efficiency, fairness, simplicity and transparency. 

• Tolls should have regard to the costs associated with the provision of toll road services as well as benefits. Declining distance-based tolls are consistent with the principle and have efficiency and equity advantages over fixed distance-based tolls or variable zonal distance-based tolls. 

• In general, it is appropriate that beneficiaries pay for toll roads, for example, where benefits flow to the broader community then government contributions are appropriate. The extent of cost recovery achieved through tolls should reflect the extent to which a toll road’s benefits are enjoyed directly by motorists. 

• The process for setting tolls should be transparent to the public to promote understanding and allow for informed comment. 

• The methodology for determining tolls should, so far as possible, be applied consistently across the entire network. 

• Tolls should allow toll road operators to recover their costs incurred in financing the construction of the toll road including an appropriate (i.e. risk adjusted) return, and efficient operating and maintenance costs where relevant. It may be appropriate to apply specific charges to individual parts of the network to allow for cost recovery, for example infrastructure charges to cover the additional costs associated with constructing tunnels or bridges. 

• Tolls should not be set at a level which would allow excessive, monopoly profits, or inefficient cost levels to prevail over time. 

• Maintaining flexibility to adjust tolls over time in response to demand and supply changes is important. 

• Toll setting should take into account fairness as well as efficiency considerations, bearing in mind that other more direct policy approaches may be preferable forms of intervention in relation to fairness. 

• The different vehicle categories for tolls should balance impactor pays (the extent to which vehicles impose costs on the network and other users due to their weight and size set against the costs imposed by such vehicles on ancillary roads) and beneficiary pays considerations (a higher willingness to pay for travel time savings). For example, under this principle setting higher tolls for heavier and larger vehicles is consistent with efficient tolling. 

• The structure of tolls should be simple enough to be readily understood by users and avoid creating perverse incentives for the use of the road network. Inconsistent approaches to the tolling of toll roads can cause distortions to traffic flows. 

• Tolling information should be communicated in real time to inform customer journeys and enable improved decision-making.

On consistency with competition policy:

• Competitive pressure should be harnessed when setting tolls and assessing concessionaire bids (competition for the market) and when regularly reviewing tolls (competition in the market). Bidding for concessions should focus on ensuring tolls are set at competitive levels. 

• Unsolicited proposals for toll road extensions should not be considered in isolation of the possibility of first modifying tolls to better manage traffic flows. 

• Restrictions should not be imposed on the use of any road or public transport in order to enhance the financial viability of a toll road. 

• Tolls should only apply where motorists have reasonable and effective untolled road options, including arterial roads, or public transport alternatives, except where community benefit may necessitate restriction on access to alternatives. 

Other recommendations

Moving to network tolling: The core recommendation is to change the current ad-hoc setting of tolls by individual concession (and the State), to a more coherent and consistent approach. The key recommendation is to have declining distance-based tolls, so that the first two kilometres are charged at a higher rate than the next two and so on.  This is for fairness, but also efficiency to recognise the cost imposed on other users of using toll roads for shorter trips, and disrupting traffic flow.  Network tolling should mean some reductions in tolls, through measures like implementing two-way tolls on one-way toll roads, and more use of peak tolling to lower tolls off-peak. Moving to network tolling should help with steps to phase out or reform toll relief, and how to progress this over time. Other options to lower tolls includes extending toll concessions.

Using pricing to influence demand: Going beyond tolling as an infrastructure cost recovery measure, is to use peak and off-peak pricing, with an initial focus on trialling peak pricing for the freight sector. This is both to reduce congestion at peak times, and to encourage better use of spare capacity off-peak. Included in this recommendation is dynamic pricing, which by the conventional definition is not a good idea in this context (although reviewing peak/off-peak pricing more frequently than annually IS a good idea). 

Updating vehicle classifications and charges: Having uniform classifiers and consistent multipliers for heavy vehicles are the key recommendations, along with exempting public bus services from all (not just some) toll roads.

Expanding toll coverage: Applying two-way tolling on the Sydney Harbour Crossings and Eastern Distributor is the obvious step (and one that has generated understandable controversy in isolation). More strategically, the review recommended evaluating the entire motorway network to see if untolled sections should be tolled (reducing tolls on other sections) or if tolls should be removed from some sections. It seems likely that this will be difficult to sell politically.

Initial assessment of toll reforms: Implementation of the reforms should be carefully monitored with frequent modelling to ensure results meet policy objectives.

NSW Motorways: The review recommended establishing a new entity called NSW Motorways, intended to strengthen governance and accountability over NSW toll roads in order to improve outcomes and transparency for motorists. It would work with concessionaires to set network tolls and adjust them working with concessionaires. It would take over the E-Toll retailing business of Transport for New South Wales and have a focus on innovating to improve the tolling experience in the state. It could also manage future toll roads and contract managers for those toll roads, and bring existing public toll roads within its operations.

Concessionaire negotiations: The Review recommends that the Government negotiate with concessionaires to implement network tolling by the end of 2024 and if not achieved, use legislation to advance it. This raises obvious concerns about legislating over the contracts the state has with concessionaires.

Independent oversight of toll setting: The Independent Pricing and Regulatory Tribunal (which is already price regulator for water, public transport and local government services) should also have oversight for toll rate setting. It should work with NSW Motorways and Transport for New South Wales to monitor prices, including the financial and traffic impacts of network tolling, toll relief schemes, the need for and operation of time-of-day pricing and concessionaire performance. 

Legislative package for toll setting: Essentially a recommendation to legislate over concession agreements if necessary to implement network tolls. This should include a Revenue Adjustment Mechanism so revenues can be “appropriately” shared.

Competition measures: These recommendations seek more competition in future concessions and a long-term view on competition with procurement of future toll roads. Concession periods should be set based on public interest considerations, including competition. Competitive tendering should be favoured over unsolicited proposals. Roaming fees (across retail toll providers) should be regulated.

Transparency for motorists: Motorists should be able to see past and projected future toll road spending.  More information should be provided for trip-planning online and via apps, as well as better signage to inform motorists of toll road prices before they make a decision on whether or not to use a toll road.

Tolling customer advocate: NSW Motorways should have a tolling customer advocate function to consider and manage customers complaints, influence improvements to systems, processes and legislation to minimise future complaints and improve compliance. It should manage awareness and education campaigns, address new “pain points” from the transition to network tolling, and publish reports on the implementation of toll reform. If a toll debt is disputed, debt recovery action should be suspended while the dispute is being addressed.

Industry ombudsman: Proposes that NSW, Victoria and Queensland require toll operators to belong to a statutorily approved independent dispute resolution scheme.

Toll notices: These should be simplified and modernised, calling them “invoices” and removing administration notices, but adding late payment fees to incentivise early payment. Information provided should be user-centric, informing them of the most common reasons for non-compliance (flat tag battery and number plate not linked to an account) so motorists can address such issues to avoid a repeat of unpaid tolls.

Debt recovery:  Reform criminal enforcement so there is only one offence per trip and clearly identify if it applies to the driver or the registered vehicle. At present debt is owed by the vehicle’s owner, but it may be appropriate for that to be the driver in some cases. For civil debt recovery, find ways to improve the accuracy of contact information for registered vehicle owners. Noting that debt collection agencies seem to be able to find debtors easier that toll road operators. Toll road operators should develop and publish customer charters

My thoughts

This is a weighty report, and a lot of thought has gone into it.  The reforms proposed might be categorised into three areas:

• Rate setting/tolling policy
• Business rules
• Competition
• Governance

The most fundamental part of the review is the recommendation to take a network approach, and to apply a declining distance based tariff with an infrastructure fee layered on top of it for the higher capital cost toll roads. There is merit in taking such an approach, albeit it is obvious the biggest challenge is doing this whilst ensuring concessionaires are not disadvantaged, and consent to the changes. The "sword of Damocles" of regulation may be there, but it is not one the NSW Government will want to enforce, as it is likely to make any future PPPs more expensive (as it would have an impact on investor confidence in contracting with the NSW Government).

Two-way tolls and having consistent vehicle classifications and multipliers all make economic sense, but it will be difficult to convince motorists that pay one-way on the Sydney Harbour Crossings that they should pay in both directions, without getting anything for it. Other than by halving existing tolls (so they are split by direction), which will likely exacerbate AM peak congestion, it seems unlikely that this will be able to be implemented due to public resistance, although if it were focused on managing demand (and moderating tolls for the Western Harbour Crossing) there might be more tolerance for it.

Certainly the distributional impacts of tolls in Sydney fall greatest on those in the West, so it is understandable why there is some emphasis in improving conditions for motorists there. I note that significant cutting tolls from Campbelltown to the CBD, a route which has a frequent commuter rail service, might have negative impacts on congestion if the modelling doesn't take into account the risk of modal shift from rail to driving, although the cost and availability of parking is a significant deterrent.

The biggest challenge is going to be getting agreement from Transurban to advance these proposals. This is only going to happen if it can be convinced it will be no worse off, not just today, but over the duration of each concession, because each concession has investors (Transurban does not own 100% of all of them) expecting consistent returns. The willingness to do this is likely to be limited, as it requires forecasting changes in demand for several decades out.

The proposal to enable peak/off-peak tolling is likely to have the greatest impact on congestion on the one-hand, and underutilised capacity on the other, noting that for concessionaires, underutilisation is not a problem but rather maximising yields. If there is a public policy reason to reduce tolls off-peak on some roads, to remove traffic from other roads, this may justify a subsidy, or better yet, justify peak pricing to offset it. 

What all of this suggests is that the proposal to change governance, by creating NSW Motorways, to undertake the analysis and modelling needed to advance negotiations with Transurban, will be important. Assuming the NSW Government is not willing to regulate over concessions, it will need to be able to model the impacts of a range of pricing policy options on each individual concession, and to creatively identify options to ensure that public policy objectives are achievable (reducing congestion, better use of toll roads off-peak) alongside making sure concessionaires are willing, to commercially, to accept changes to their concession agreements.  It is appropriate to set up NSW Motorways in any case, as a road regulator which applies to state toll roads (there are two more being built now on top of the two existing Sydney harbour crossings), and which could be extended to cover a future road user charge...

The Review does allude to the wider issue of how motor vehicles are charges for road use across the network in NSW, and the need for some form of road user charging for EVs. Ultimately, there may be scope for more direct user charging across all roads, but given the Vanderstock decision at the High Court of Australia, that looks likely to be led by the Commonwealth Government. At the very least, the NSW Government should be thinking strategically about tolling in that wider context. It is not that road user charging will replace tolling anytime soon, but if there is to be a shift towards distance based tolling across the board, it should not be inconsistent with applying some form of per kilometre charging for vehicles on all roads. 

On the business rules side, the proposals around debt recovery, transparency for motorists and an industry ombudsman are all good from a consumer protection point of view.  None of this should be particularly controversial.

Given the role of Allan Fels it should not surprise anyone that competition has been a focus of this review. The dominance of Transurban should give cause to seek to diversify the profile of future concessions, but the retention of retail competition is also important. Bear in mind the main competition for toll roads are the untolled roads (and for a small subset of users, public transport on some corridors), and although it is flawed, toll roads do have a form of price control over price increases (albeit it effectively means prices increase by inflation).  However, competition can never really be addressed whilst other roads are priced so indirectly, through fuel tax and fixed charges like motor vehicle registration fees. Perhaps the most effective way of enabling competition for future toll roads is either for such roads to be state owned and concessions issued for operations, or for future concessions to have tolls set by independent regulation.

Finally, although the political will is hardly likely to exist for it, there is likely to be sense in at least considering implementing congestion pricing in the form of a CBD cordon in Sydney in parallel with such changes. Such a cordon could be used to moderate tolls as well as better manage congestion on traffic towards the CBD, but that was outside the scope of this review.

The response

The Government response so far is through this press release, which is not really a response as of yet. According to The Guardian, Transurban has said it wants to take a corridor based approach and does not approve of the full network approach.  Roads Minister John Graham also suggested that taxpayers might pay concessionaires to implement some of the recommendations, which is a good idea, if it results in net benefits to consumers and the economy (noting that it could reduce the cost of existing toll relief schemes if tolls can be reduced for some customers).

The full response will not be clear for perhaps a few months, and it seems unlikely that all recommendations will be accepted. However, there is a strong case for more consistency in tolls across Sydney, and despite the unpopularity of two-way tolls for the harbour and peak tolling, the merits of being able to spread demand more efficiency are likely to be high.

What needs to be behind any reforms are consistent principles and objectives. Discouraging short trips on toll roads is likely to result in more efficient use of the network, declining distance based tolls makes sense up to a point, but the merits of high toll costs for long distance travel come from the signals they send for land use and modal choice. 

There have been enough toll reviews in recent years, as my first post on this topic showed (and I was involved in one of them myself). I sincerely hope the NSW Government acts on much of what this one recommends.

Following on from my previous post, this is a listing of the 16 findings of the review. Not the recommendations, but the findings. I have included some of my own comment on these at the end of each finding. Generally the findings are fair, although I think some of them are repetitive and essentially different sides of the same point. The findings have a strong consumer interest element to them, which is unsurprising given it was led by Allan Fels, but there is also some discussion around public policy implications and a bit around markets and delivery of services. Again it reads a bit like an ACCC series of findings, unsurprisingly.

For me, the main points are the lack of coherence around toll rate setting and structures, the inflexibility to apply time-of-use based pricing to better manage congestion and demand, and the poor policy responses to the current structures.  The dominance of Transurban is valid in the toll concession process, but with the presence of E-toll, its retail market share is not monopolistic. Future envisaged toll roads are not intended to be undertaken as PPP concessions, indicating a willingness to take a different approach, although it should be possible to proceed with PPPs without the restrictions and constraints (including the toll rate escalators) implemented in previous years.  Following this article will be one on the recommendations and what I think of those.  However, for those outside NSW, the main benefit of this report is on lessons to apply elsewhere around toll rate setting, PPP contracts and taking a strategic network view, rather than an ad-hoc approach to separate major projects. 

The structure of the findings is a summary of the findings from the report, followed by my brief comment.

The findings

1: The process for setting tolls has been flawed: Largely because governments determined them in advance of PPP concessions, rather than using competition in procurement to incentivise bidders to propose the lowest tolls needed to fund the roads. Long concession periods and higher than inflation cost escalators mean tolls in early years are lower than they should be, as the cost of the infrastructure is pushed towards future users more than early users.  Efficient in road and toll operations almost entirely benefits owners of concessions and is not reflected in lower tolls. Comment: Ideally tolls should be proposed by project bidders or proponents and be subject to competitive pressure, and rigorous public sector scrutiny. It is worth reviewing the merits of allowing tolls to increase above CPI if costs do not do so, but not there is also no scope for tolls to reflect actual demand. Rigid concession conditions around tolls affect the ability for future tolls to be able to address distortions in pricing between tolled and untolled roads, and changes in demand across the network.

2: PPP details relating to toll setting are not publicly disclosed reducing information available to assist in public understanding: Commercial confidentiality claims around PPP agreements limit this information, and consequently increase public disquiet about toll rate setting. The Review noted that Base Case Financial Models are confidential and commercially sensitive, but said returns from PPPs are “generous”. The Review cannot publish the differences between actual revenue and model forecasts because of this confidentiality, making it difficult to assess whether tolls set are too high and whether excessive profits are being generated from toll concessions. Comment: Future concessions should enable regulatory oversight of the differences between actual and forecast revenue. A careful balance is needed between incentivising PPPs sufficiently and not enabling rent-seeking behaviour.

3: Toll road users bear a disproportionately high proportion of the cost of toll roads: The key issue is when toll roads bypass the untolled network and generate significant local amenity benefits. The Review noted the Cross City Tunnel (which provides a bypass of inner Sydney between east and west) which brings significant benefits to surface traffic, including property owners and pedestrians, but was expected to be fully funded by the users of the tunnel. There is a case for those others benefiting from the project to contribute towards its costs. Comment: Toll roads offering significant local amenity improvement, due to removal of traffic and enhancing of property values ought to be partially supported by revenue generated from surface traffic (through network charges such as fuel taxes) and property taxation from property owners. It is clear the Cross City Tunnel in Sydney is underutilised due to its high toll structure.

4: There is no overall system of tolls: Tolls are all set in isolation of each other, and although they could be set to send price signals to optimise the use of road infrastructure they are not designed to do so. The complexity of tolls as they are, including toll relief schemes, untolled motorway sections (which are often used by many motorists paying tolls on other sections).  Comment: From a network perspective, tolls in Sydney send inefficient price signals that distort behaviour and do not encourage efficient network use. For example, overnight toll prices are far too high and ought to be set to remove traffic from surface streets whilst peak period tolls are often too low, and should be priced to encourage time and modal shift. There are no effective means to enable this.

5: The lack of a unified tolling system creates complexity, inefficiency, inequities and unfairness: With different vehicle classification systems and toll regimes, similar trips are priced differently across the network. Roads with similar levels of service are priced differently. Smaller trucks are in some cases charged the same as larger trucks, discouraging them from using some toll roads. Comment: As above, there should be more efficient pricing applied by location, distance and time-of-day and vehicle class. More standard pricing across the network, unless particularly costly parts of infrastructure are being used, would be rational and efficient.

6: Tolls are too rigid and locked-in for decades without options for review:  No other sector of the economy sets prices for such a long period, certainly no other transport mode. This increases perceptions of unfairness over time, as prices rise faster than inflation. The Review reports modelling that around A$123 billion in tolls will be paid between 2024 and 2060. With no processes or means to review tolls during those concession periods, it raises serious questions as to why it is justifiable to have prices set for well over a generation through contract between the private sector and state government. Comment: Concessionaires like guaranteed toll levels and escalations, but no other investments in the private sector guarantee such revenues without regulatory oversight (see energy and water utilities which are subject to such oversight). This suggests that future PPPs have provision for regulatory oversight of pricing at regular intervals.

7: On most toll roads, time-of-day tolling is not used:  At off-peak periods many toll roads are heavily underutilised, and at peak periods several can be highly congested. Pricing should enable better utilisation of the infrastructure. Comment: Generally, there are wider economic benefits in enabling better use of tolled infrastructure, especially since most of it has natural monopoly characteristics and there are some amenity benefits in enabling it.  However, there is limited elasticity of demand off-peak, in that lower prices will result in lower revenues (as additional traffic is unlikely to offset reduced prices), although at peak times higher tolls that reflect demand profiles should improve congestion on a network basis and encourage modal shift. There are considerable merits in enabling time-of-day pricing, subject to regulation, in ways that do not undermine concession net revenues, but significant improve outcomes for the transport network. 

8: The financial impact of tolls is greatest in Western Sydney: Western Sydney suburbs have the highest proportion of motorists paying over A$60 a week on tolls, reflecting the extent of tolled infrastructure in the West and the lack of useful alternative routes. This arguably affects access to employment and other opportunities for residents in those suburbs. 

9: Transurban’s profitability has not been excessive in recent years, but its NSW toll road portfolio profitability is likely to increase over time in line with traffic and toll rate escalation, and declining construction costs: Sydney generates 50% of the toll revenue for Transurban, but its returns are not excessive when considered against the Weighted Cost of Capital. However, it is expected that profitability will row in future years. Comment: This is critically important, as it is important to ensure that Transurban isn’t extracting excessive rents from Sydney road users. However, it also suggests that the toll rate setting system for future concessions should not enable continued increases above inflation.

10: The level of tolls appears to be higher than necessary and desirable: This is in part, counting earlier points as follows. There was no competitive bidding for PPPs on the basis of toll price, concession agreements allow relatively high returns for multiple reasons including a regulated monopoly price safe from competitive challenge, incentives for efficiency are largely captured by concessionaires (and not shared with users). Toll roads are relatively free-flowing and potentially underutilised (indicating tolls are certain times are too high) and motorists perceive tolls as too high. Most of those surveyed who claimed tolls are too high tend to use alternative non-toll routes or reduce frequency of non-essential travel. 15% use other modes, but nearly 40% do not change behaviour (but pay the toll). Comment: There is clearly a distortion in travel between tolled roads and untolled roads essentially because of underpricing of untolled roads. Surveying the public about tolls is likely to result in an answer that many people think tolls are too high, but the real evidence is that the tolled network has much less congestion, on average than the untolled network. Many complain about tolls but still pay them, but that does not mean that tolls are not too high, but it does mean that this is overplayed. Toll roads take up land, and are high capital cost assets and arguably it is fair they generate a return on capital (even if this isn’t what explicitly happens with other roads). However, the negative externalities of pricing only part of the network are not insignificant, and there is a strong case for enabling time-of-use pricing.

11: Transurban has a dominant market share in the current provision of toll roads in Sydney:  Although this is clearly the case, there is competition from untolled roads and other modes. Restrictions on Transurban include the limits on toll rate increases and the conditions on maintaining network quality during concession periods. Comment: Transurban has been commercial adept in expanding its presence in the market, but the “market” itself has entirely been driven by the State Government issuing concessions and the conditions it sets for those. The presence of the state account manager adds significant competition in terms of customer service, for “some” services, but concern over Transurban’s dominance is within the control of the State Government for future toll road concessions and in future regulation of them.

12: Transurban has been dominant in the NSW market for acquisition of toll road concession contracts: This is due to factors, such as its experience in bidding, the economies of scale of its existing operations and its access to in-house data on traffic and in modelling.  It’s noted that of the four motorways under construction in Sydney today, two wont be tolled and the other two will be state-owned toll roads. Comment: This is essentially a repeat of the previous finding, and what matters is what impact it has on public finances, motorists and the economy. That hasn’t been explained clearly.

13: The significant position of Transurban in the toll retailer market could adversely affect competition for tolling concessions: Until 2019 there were four toll road retailes, but Transurban acquire two of them. Now it is Linkt (Transurban), E-Toll (State Government) and Eastlink (a toll road in Victoria) that hold the entire market, with Eastlink’s presence essentially only for a handful of vehicles that hold such accounts in Victoria visiting Sydney. Barriers to entry are not seen as significant, and clearly the presence of E-Toll makes a difference to Transurban’s performance in the market. Comment: There is a “could” here significantly diluted by the presence of E-Toll, but there aren’t enormous barriers to market entry and future concessions and toll roads should be open to more innovative solutions in providing retail services. This could include the growing mobile phone based suppliers, but longer term the inevitable implementation of RUC in Australia should see providers of such services also being able to supply toll retail services to their customers (e.g. telematics service providers for heavy vehicles). 

14: Current tolling information fails to adequately enable, inform, and educate motorists thus reducing user empowerment and efficient decision-making: There is no “one-stop” platform for motorists to obtain all tolling information (including available rebates) and undertake trip planning in a way that is easy to use. Signage about toll rates is inadequate to give motorists sufficient time to adjust route choice. Retail toll platforms do not allow motorists to project future toll usage. There is little understanding as to how tolls are calculated, or understanding about toll administrative charges, and what revenues are used for on non-PPP toll roads. There is also insufficient information about the rights and responsibilities of toll road customers. Comment:  This is true, although there is nothing stopping there being such an app or platform to do this, other than the lack of commercial interest in doing so.  Signage should better enable route choice, and even could compare travel times by tolled and untolled road, although this would have to be the responsibility of the public road controlling authorities. 

15: Toll reform is preferable to toll relief: The current toll relief schemes are inadequately targeted and underutilised, in part due to overly complex administration. Toll relief is not financially sustainable given the existing pattern of toll escalation and limitations on the availability of government resources to fund relief:  This is focused on the M5 toll relief scheme which is confined by geography, does not have processes for review. It appears to be politically entrenched and is likely to have significantly affected transport and land use decisions along the M5 corridor. This and other toll relief schemes are blunt and likely to be financially unsustainable, and likely to primarily benefit higher income earners. It would be preferable to reform tolls more widely. Comment: Clearly the current toll relief schemes are inefficient ways to address public concerns about toll rates, and it would be much preferable to phase it out and reform the toll system more widely. 

16: Concessionaires are an unintended beneficiary of the current approach to toll relief. Increased traffic and patronage of toll roads, through induced demand created by toll relief, directly benefits operators by increasing their revenues: By subsidising tolls, toll relief effectively benefits concessionaires by subsidising demand for their facilities. It is not enough to generate funds beyond agreed levels that would require upside sharing with government, but is enough to benefit Transurban.  Comment: This highlights the inefficiency of toll relief as a subsidy from other road users and taxpayers to concessionaires and the beneficiaries of relief.

 This is the first in a multi-part series about the epic toll review.

“Motorists First” (PDF) is the title given to the latest report on tolling in Sydney. Led by Professor Allan Fels. Fels is best known as having been Chairman of the Australian Competition and Consumer Commission between 1995 and 2003. The focus of his career has been on breaking monopolies, and he took this opportunity of leading the Independent Toll Review for the Minns’ Government in New South Wales to try to do the same to Transurban – which has a stake in most of the toll roads in Sydney.

The review was announced in July 2023, three months after Labor won the state election, but it follows a long line of reviews of tolling in New South Wales (by which I mean Sydney as there are no toll road outside the greater Sydney metro region).  The review posted this handy list of the reviews undertaken by multiple NSW state governments. 

Major toll road openings and New South Wales tolling reviews over 21 years

Sydney's tolled and untolled motorway network

Sydney toll road ownership/supplier distribution

In a landmark court decision, the High Court of Australia ruled (in a narrow 4-3 ruling) in the case of Vanderstock & Anor v State of Victoria, that the Zero and Low Emission Vehicle Distance-based Charge Act 2021 is invalid under Section 90 of the Constitution as it imposes a duty of excise.  The charge was known as the ZEV in Victoria.

This effectively means Victoria’s distance-based road user charge (RUC) for battery-electric and plug-in hybrid electric vehicles is illegal.  The basis for the decision is interesting, as it appears to be that:

The charge was deemed by the court to be “a tax on goods because there is a close relation between the tax and the use of ZLEVs, and the tax affects ZLEVs as articles of commerce, including because of its tendency to affect demand for ZLEVs”. 

If I put my legal hat on (I am a lawyer), this is quite an interpretation, as it seems to regard the charge as being an excise because it affects demand for zero and low emission vehicles. This blog is not the place to debate the legal arguments, indeed the dissenting judgments amply raise the key issues.

The obvious policy question is if a charge of A$0.028 per km on the use of zero emission vehicles is an excise because of its "tendency to affect demand for ZLEVs”, and if the tax (it was critical that it be deemed a tax, and not a fee for services) is a tax on goods, is not the annual registration fee (which is A$876.90 (US$553) for a car in a metro area of Victoria) similar? It is effectively a tax on being able to use the car.

However, the court has ruled, and it does beg a wide range of questions both at the strategic policy level around charging road vehicles to use roads in Australia, and the effect the decision has on the options to do this.  At a basic level there are two points:

1. The Victorian ZLEV tax as it was designed is unconstitutional: This was a mandatory charge, that had no option (as applies in some states in the US) to pay a flat annual fee instead, which only applies to a small proportion of light vehicles.  Would a tax that had another option be legal? Would a tax that applied to all light vehicles be legal, including one that might largely replace registration fees (so may have a neutral effect on demand for light vehicles as a “good”)? Would it have been legal had the Department levied it as a fee based on costs of providing a service, rather than as a tax? 

2. The Commonwealth can levy a tax charge such as the ZLEV, but only across all of Australia: If it were policy, the Commonwealth could pass legislation requiring all electric vehicles in Australia to pay a per km RUC.  Similarly, could it apply it to all light duty vehicles? Arguably fuel excise duty does that now, but fuel excise duty strictly speaking affects demand for the fuels that are taxed, if you consider the definition applied by the High Court.

What happens next is obviously going to be a matter for the Victorian Government to consider, and indeed given both New South Wales and Western Australia have legislated for their own RUC systems to apply to electric vehicles from 2027, they will have an interest (along with all other States and Territories).  Is it possible for them to design a road user fee, based on provision of a service (roads as a service) and the costs of providing it?  If so, how could that be legally drafted without simply empowering a road manager to implement such a fee? Could it be applied across all road managers in Victoria? There are 79 local road managers and at least 1 state road manager in Victoria.

Victorian Premier Tim Pallas argued that it was about “fairness” and noted that electric vehicles were heavier and contributed more to “road degradation”. That latter point is highly questionable, but also not really relevant.  The difference in weight between types of light vehicles makes very little impact on road wear, as most road wear and tear arises from the effects of weather and temperature, and the passage of heavy vehicles, not vehicles weighing < 4.5 tonnes.

The Commonwealth Government might be expected to have a view on the future of charging electric and other light vehicles for road use, as it was supportive of the plaintiffs. It would be reasonable to expect a policy position to be expressed in the coming months either to advance investigations in how RUC might be implemented for electric vehicles across Australia or to defer considering it until they are a larger proportion of the fleet. Ultimately it cannot be avoided, and it is in Australia’s interests to have a single coherent strategy to charging vehicles for using the roads, as it affects the sustainability and future of fuel excise duty.  I hope that decisions are made in coming months for the Commonwealth to investigate pathways towards transitioning how light vehicles pay to use the roads, and alongside that, how revenue collected from them can be managed and efficiently distributed.

It's important to note that the Commonwealth already has a clear role regarding how heavy vehicles are charged for road use.  Part of fuel excise duty is legally called a Road User Charge, which is what heavy vehicle pay to use the roads.  Owners of such vehicles are entitled to refunds of the remainder of fuel excise duty when being driven on public roads (and to receive a full refund when driven off public roads). The Commonwealth has already been piloting options for a long-term transition from fuel excise duty and (State and Territory collected) registration fees towards paying by distance and weight. There is already some knowledge and understanding of the relevant issues within the Department of Infrastructure, Transport, Regional Development, Culture, and the Arts (DITRDCA).

Could States and Territories design a RUC that is not illegal?

It might be theoretically possible to design a light-vehicle RUC at the State and Territory level that does not come within the definition of excise, as indicated in Vanderstock & Anor v State of Victoria.  Some of the characteristics of such a fee could include:

• It is a fee based on consumption of a service, not a tax. This affects how it is collected and how it is enforced.
• A fee that replaces another charge (aiming to be revenue neutral), such as replacement of registration fees. Arguably this would not affect demand for the “good” if it replaces a different type of tax. 
• A fee that applies to all types of (light) vehicles, which is also a replacement of registration fees, so it does not affect demand for one type of vehicle.
• A fee that does not apply to consumption out-of-state. Victoria's tax applied to distance travelled anywhere on public roads, making it more difficult to claim that it was about consumption.

I suspect States and Territories might investigate such options, if they are determined to implement a form of RUC, but there may be a preference to simply leave it to the Commonwealth. Motorists are likely to prefer this, but the political will to do it will depend on one government taking a chance (and needing to work with the State and Territory Governments, all of which control motor vehicle registers essential to making it work), rather than eight separate entities doing so.   

What does the Commonwealth need to consider?

Clearly the basis for having the Commonwealth proceed is that it is Commonwealth revenue being eroded by changes in vehicle technology. Given work already underway investigating RUC for heavy vehicles, it would make some sense to have a unified approach, which co-ordinates with States and Territories.

A wide range of issues would need to be considered including:

• What types of vehicles should first be moved onto RUC? Just those that pay nothing now (EVs), those that pay significantly less fuel tax (PHEVs and BEVs) or allow any light vehicles to opt into RUC?

• What would be the best basis for rate-setting? Should it be based on cost-allocation on a forward-looking cost base as has been proposed for heavy vehicles?

• Would it (and if so when would it) apply to vehicles currently paying fuel-excise and if so, how would fuel-excise be treated (i.e., refunded, credited to a RUC account)?

• What technical solutions would be suitable?  Automated options require equipment to be installed or existing telematics to be used, manual options require verification.

• Will technical solutions be piloted with a section of the public (as is being done for heavy vehicles)?  What would be the purpose of piloting RUC?

• Will revenues be hypothecated into a roads fund? If so, how would revenues be distributed among States and Territories compared to existing Commonwealth funding for roads?

• Would a Commonwealth RUC be applied at a single rate regardless of State or Territory, or have rates set that vary by location?  A location based RUC would limit the technical options that would be feasible.

• What entities would be responsible for operation and enforcement of a Commonwealth RUC? How would a high standard of customer service be ensured?

• What roles would States and Territories have with a Commonwealth RUC?

What now?

Regardless of what happens, there would need to be a significant Commonwealth role in any case. It would be costly and complicated to have potentially eight different RUC systems, all of which are focused on collecting data and money from vehicle owners in their own borders, and to enforce RUC across them.  It may have been less problematic for some (Tasmania, Western Australia and the Northern Territory all have low levels of cross border traffic), but much more complex along the eastern states and territory.  

Given States and Territories have generally made EVs exempt from registration fees and are unlikely to want to apply RUC more generally across all light vehicles, it seems likely they will now turn to the Commonwealth to get some direction around how it wants to approach RUC for EVs and RUC more generally. This is an opportunity to consider the wider road charging and funding framework across Australia, including the role of fuel excise and registration fees. RUC is inevitable for highly fuel-efficient vehicles, the question is not if, but when, but it should be considered within the wider context of the questions outlined above. 

With three US states having implemented RUC for parts of their light-vehicle fleets already (Oregon, Utah, and Virginia) and a fourth having mandated it (Hawaii), and multiple others piloting and investigating it (including the Federal Government), there is extensive experience in addressing many of these issues. New Zealand’s long standing RUC system will soon be extended to electric vehicles (it already covers all heavy vehicles, and all light diesel vehicles) also provides some useful lessons. There are also several pilots that have been undertaken in Europe.

The Commonwealth Government may not decide to do anything in the meantime, but that is a policy choice, and it could be undertaken with the clear message that it is intended to encourage growth in EVs and PHEVs. However, the easiest time to introduce a RUC is when the vehicles it is meant to apply to are few, and technical and policy options to do so can be easy to test.  Australia has time to develop a strategy for road charging that might place both heavy and light vehicles within a single framework. It would be wise to do so over the next few years, and take the chance to bring States, Territories, stakeholders and most importantly, the public with it. 

The Australian Commonwealth Government has been undertaking a programme of trialling distance and weight based road user charging (RUC) for heavy vehicles.  It ran a small-scale trial in 2019-2020 using existing telematics equipment, which was evaluated here.  Now the large-scale trial, manual technology component, was launched quietly by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDCA) in July 2022 and will run until the middle of the year.  It uses hubodometers, installed on powered units and trailers, with prepaid permits. It has parallels to New Zealand's long established Road User Charge system that has applied to heavy vehicles (over 3.5 tonnes) and light diesel vehicles. since 1978.  The graphic below depicts how the manual pilot works.

Australia's National Heavy Vehicle RUC pilot manual permit based system

Participants "buy" a permit (no real money is exchanged) for distance travelled, enabling participants to compare what they pay to stay up to date with distance permits, compared to what they pay in fuel tax and registration fees under the current system.

The video below includes segments from some of the trial participants.

This is not the only part of the trial, as a telematics based trial is due to start later this year, using a mix of new and existing on-board telematics systems on a range of trucks and buses.

The purpose of the trial is to gather data about various types of operators, obtain feedback on their experiences of the technological option and what operators think of paying by distance rather than tax on fuel and the high Australian registration fees for heavy vehicles.

The findings will be interesting and should inform decisions about whether to proceed with reforms to replace the fuel tax and registration based system (known as PAYGO or fuel based RUC), with a distance, weight and configuration based road user charge.

Disclosure: Milestone Pacific Pty Ltd (a subsidiary of CDM Smith) has been a technical advisor to DITRDCA on the National Heavy Vehicle Charging Pilot since 2019.  I have been leading that advice.

I've been very busy, but there are some announcements worth noting as follows

Western Australia announces it will introduce distance-based RUC on EVs in 2017

As part of an package of measures to incentivise increased sales of electric vehicles, the Western Australian Premier has announced that the state government will introduce 

 introduce a distance-based road user charge for zero and low emission light vehicles commencing from July 1, 2027 to ensure all motorists pay their fair share towards the maintenance and construction of WA roads.

A base rate of 2.5 cents per kilometre for electric and hydrogen vehicles and two cents per kilometre for plug-in hybrid electric vehicles will apply, with both rates indexed to the Consumer Price Index.

This parallels what has already been announced in New South Wales, what has been introduced in Victoria in 2021 and what was also announced for South Australia (but for which the recently elected Labor Government has vowed to repeal).

Western Australia has some history in looking at heavy vehicle RUC, but it will be interesting to see how this may be implemented, as it could be a simple odometer reporting based system given there is little interstate light vehicle traffic. 

New Zealand Government to make announcement on progressing congestion pricing in Auckland next week

It has been studied and investigated for some time, but Radio New Zealand is reporting (alongside other media outlets) that when the New Zealand Government Emissions Reduction Plan is released on Monday 16 May, it will also announce it will implement congestion pricing for Auckland.  It is likely to be focused on a downtown inner city cordon-style scheme at peak times only, but with the potential to expand into corridor charging beyond that. It also appears that the net revenue may be used to offset a cut and eventual abolition of the Auckland Regional Fuel Tax established only in 2018 to help fund transport projects in the city.  That tax is currently at NZ$0.125 per litre including Goods and Service Tax.

Virginia to launch RUC for EVs on 1 July 2022

Virginia will be the third US state to implement distance-based RUC for light vehicles on 1 July according to NBC12.  Branded "Mileage Choice" it will offer EV, hybrid or other ultra fuel efficient vehicle owners the choice of paying by mile instead of paying a flat annual fee for registration (currently US$109 per annum).  Distance will be measuredly a plug-in device supplied by Emovis, with an initial odometer reading captured by smartphone imaging to register.  

RUC makes little difference to EV sales.

Under a year ago I wrote this piece Would RUC for EVs harm sales? largely in reference to concerns in Australia from the Electric Vehicle sales lobby that Australian states investigating road user charging (RUC) based on distance, for light vehicles; would significantly reduce consumers' propensity to buy such vehicles. 

Dr Jake Whitehead from the University of Queensland apparently conducted a study which was cited in an article in Driven that claimed it would hurt sales by 25%, claiming that it would be perceived by drivers as adding $4,000 on the cost of owning and operating an electric vehicle. I demonstrated in my previous article that this was highly questionable, because no purchasers of petrol powered cars estimate the fuel tax they would pay on top of the cost of owning and operating the car. If they did, it might be around A$367 a year for a new petrol Hyundai Kona driving the average annual 13,838km of a car in Victoria. This compared to around A$346 for an equivalent EV paying the Victoria state RUC. Sure I understand Whitehead's estimate, but it simply isn't a valid comparison to think anyone buys a car thinking about the lifecycle costs of charges associated with using the road (although buyers of many commercial vehicles do make such estimates). 

However, there is now some actual evidence, with the latest sales data on electric vehicles in Australia.  You see Victoria introduced RUC (known as the ZLEV road-user charge) at A$0.025 per km for battery-electric EVs (BEVs) and A$0.02 per km for plug-in hybrid vehicles (PHEVs). Both also obtain a registration fee discount of A$100 a year. 

The data for 2021 indicates that 6,396 EVs were sold in Victoria, with 7,430 sold in NSW and 5,342 in Queensland. Given RUC was introduced in July 2021 if Dr. Whitehead's assessment were valid you would expect a significant decline in EV sales relative to other states, but that isn't what happened.

You see the 7,430 sold in NSW compared to the total passenger vehicle fleet in NSW is around 0.17% of all vehicles. Whereas the 6,396 sold in Victoria, compared to the total passenger vehicle fleet in Victoria is around 0.16% of all vehicles.  If it made a difference it was barely discernible, and undoubtedly less relevant than other factors.

In the ACT, the number of EVs sold comprised 0.37% of all passenger vehicles registered in the territory, the highest of any state and territory, but that's not so surprising. The ACT has relatively high affluence, motor vehicle registration is free for two years for EVs, with a 20% ongoing reduction.  

Queensland has a slightly higher number of EVs as a proportion of all passenger vehicles at 0.18%, but that's close enough to NSW and Victoria to suggest that there isn't a significant difference in policy impacts.

Western Australia, Tasmania, South Australia and Northern Territory all have much lower sales, as a proportion of the total passenger vehicle fleet, than the other states, ranging from 0.1% to 0.05%.  In shortsthere is a great deal of reluctance to buy EVs in Australia, but the wealthiest eastern states/territory have better sales.  Note that both NSW and South Australia announced they would introduce RUC from 2027.

So from that I conclude that RUC in Victoria has made virtually zero difference to EV sales in the state. 

That's with a RUC rate of A$0.025 which is equivalent to US$0.029 per mile or £0.02 per mile or €0.016 per kilometre. That is higher than some US states have implemented or are proposing, but much lower than would be a replacement rate for fuel taxes in any European countries.

A higher rate might make a difference to sales. Certainly New Zealand has maintained an exemption from its RUC system for EVs, which would have resulted in them being charged NZ$0.076 per km (A$0.071 per km, €0.045 per km, US$0.08 per mile or £0.06 per mile). Exemption EVs from RUC has undoubtedly contributed to greater sales per capita than in Australia, but I suspect other factors, including price of electricity and the network of charging points matter as well (plus less range anxiety in a smaller jurisdiction).

What it means is that RUC, as a policy tool, needs to be considered within the context of a wide range of pull and push factors for jurisdictions that want to encourage sales of EVs. 

What was proposed?

Victoria, Australia, Infrastructure Victoria (an independent government advisory body on funding, regulation and governance of infrastructure) put out a series of recommendations for the next thirty years as a draft strategy for the state. That draft is available here (PDF).  It made several recommendations regarding road pricing notably the following (there are several on parking pricing which I will NOT cover here, but are adjacent to the road pricing proposals:

48. Remove annual charges while introducing distance-based pricing for electric vehicles

Remove annual up-front charges, such as registration fees, while introducing a distance-based road user charge for electric vehicles in the next two years. Consider extending this to other types of vehicles on an opt-in basis, allowing for expansion over time.

This was implemented earlier this year.

also

49. Appoint an independent transport pricing adviser

Immediately appoint an independent body to advise on and monitor transport prices.

This isn't just tolls/road pricing, but also public transport fares, but it is interesting to want more transparency and objective advice on pricing

51. Incorporate congestion pricing for all new metropolitan freeways

Apply congestion reducing tolls to all new metropolitan freeways, including the North East Link.

This is fair enough too to help spread demand, with lower tolls off-peak and higher during the peak, with a commitment to use such tolls to manage demand permanently.

52. Trial full-scale congestion pricing in inner Melbourne

In the next five years, trial full-scale congestion pricing in inner Melbourne.

This also seems reasonable, the presumption being it is some sort of cordon, but given the intensity of public transport and active mode provision, it also seems worthwhile.

and finally

55. Phase out fixed road user charges and introduce user pays charging

In the next 10 years, replace fixed road user charges with variable distance-based and congestion charges. Ensure user pays charging reflects the relative costs of providing roads, and encourages drivers to change their behaviour.

This is a much bigger deal, because it means replacing annual registration fees with distance, time and location based road user charging, reflecting both the costs of infrastructure and congestion.

The Victorian Government response

The Victorian Infrastructure Plan, is the State Government's response to Infrastructure Victoria's proposal. So what did it think of these road pricing proposals?

Number 48 is already implemented, so was obviously accepted..

49 (Independent pricing advisor) was not supported because "current legislation and procedures provide sufficient scope to review and set transport pricing to ensure positive community outcomes". It's effectively not wanting oversight of existing processes and political direction over pricing, which is disappointing. The National Road Transport Association (NatRoad) supports such oversight.

51 (Congestion pricing for all new metropolitan freeways) was not supported because "This recommendation does not align with existing government policy. Each new tolling project in Victoria currently requires its own project-specific legislation to establish a legal basis to facilitate the operation and tolling powers involved in the project. These tolls are set at rates that aim to achieve balance for a number of movement, revenue and contractual objectives. The North East Link motorway will be tolled, but rates have not yet been set. This legislative requirement means that significant lead time is required for each new tolling project to ensure that it has the required rights and powers to charge tolls and enforce their collection."

Victoria COULD move from project-specific legislation to general empowerment legislation for tolling, and this could then allow for this. Project-specific legislation is desired by concessionaires who want certainty over the regulatory environment, but this is not essential. The reason the proposal has been rejected is not about the merits of the policy. 

52 (Trial congestion pricing in inner Melbourne) was not supported because "This recommendation does not align with existing government policy, however the Government is continually monitoring the balance of public versus private vehicle use and congestion on inner-city roads. Impacts of management of the COVID-19 pandemic have significantly changed travel patterns particularly into Melbourne CBD and this has increased uncertainty about future demand, particularly in central Melbourne."

Again, there isn't a claim about the merits of the policy, it isn't either a concern that Covid means that there is concern congestion pricing might go too far (which is a function of the scheme design, not the concept). If there isn't congestion, then it isn't worth implementing. Again there is no real criticism of the proposal on merit.

BUT there is hope...

55 (Phase out fixed road user charges and introduce user pays charging) is supported in principle.

This has much more potential that congestion pricing on new freeways or in central Melbourne, as it involves drastically cutting registration fees and replacing with distance based RUC with charges varying by time of day and location (congestion pricing).

The official response is: 

The Government supports the intent of this recommendation and is considering the long-term effects of the erosion of revenue from the fuel levy as more vehicles move to non-fossil fuels and electric propulsion. The introduction of distance-based charging for zero and low-emission vehicles in Victoria is a first step in ensuring the long-term sustainability of the transport network by making sure everyone pays their fair share to build and maintain our roads.

The Victorian Government is also currently working with its state and Commonwealth counterparts to enhance the manner in which heavy vehicles (those over 4.5 tonnes) are charged for their road use. The Government will continue to work with the Commonwealth Government on heavy vehicle road reform to develop a future model that is fair for all users of the transport network while funding maintenance and development of infrastructure and services that provide the best value to Victorians. The Government will continue to monitor the policy settings associated with road charges.

Victoria starts the journey towards expanding RUC

The simple fact remains that Victoria is the fourth jurisdiction in the world to introduce a road user charge based on distance for at least part of the light vehicle fleet (the others are New Zealand, Oregon and Utah).  Victoria recognising that it will need to transition other vehicles to RUC eventually.  It is working with the Commonwealth Government on Heavy Vehicle Road Reform (which includes a trial of heavy vehicle RUC).  

However, although it supports it "in principle" it is, technically, a huge deal to think about implementing RUC by location and time of day not just distance, across the State.  It requires all vehicles to have the necessary technology to distinguish distance by location and time of day, such as on-board telematics (mobile phones aren't up to it for multiple reasons).  However, it COULD be that if confined to Melbourne, that a backup system could be in place for unequipped vehicles (particularly out-of-state vehicles) to pay based on location and time-of-day.

Let's not get too excited, but it is a positive step forward and it is about a ten year transition.

Worth noting the responses to date:

The Australian Logistics Council is supportive but wants it to be nationally co-ordinated (which makes some sense, as there will need to be some interoperability and common approaches to dealing with vehicles from one state measuring distance travelled in another and being billed for it). 

Opposition MP Roma Bricknell (Liberal) is opposed, adopting the commonly held opinion that it would mean people in regional areas paying more, even though there is no evidence at all that people in rural areas drive more distance on average than people in cities.  Research in the United States indicates that it varies considerably, largely because people in cities tend to do many more driving trips (there is more to visit, more places to go), but shorter trips. So on average, people in rural areas may drive on average more or less the same as people in cities. However, what also matters is the fuel efficiency of the vehicles people drive, and if you cut registration fees significantly, people with multiple vehicles will pay less, because it is based on usage. 

Update:  

With the State of Victoria's announcement of road user charging (RUC) for electric (EV) and plug-in hybrid vehicles (PHEV) there have been quite some claims from various circles about how allegedly damaging RUC could be for sales of such vehicles. 

According to The Guardian:

A coalition of car manufacturers, industry groups, infrastructure companies and environmentalists have branded the Victorian government’s proposed electric vehicle tax the “worst electric vehicle policy in the world”.

The more recent announcement about incentives to purchase EVs should help ameliorate this concern, but it remains a moot point as to whether RUC actually disincentivises purchases of EVs.

The incentives package is as follows:

• Subsidies for 20,000 EVs to be purchased, of up to A$3,000 per vehicle for vehicles priced under A$69,000;
• A$19m to be spent on EV charging infrastructure across regional Victoria;
• A$20m for a zero-emissions bus trial;
• A$10m to purchase 400 new ZEVs for the State's own fleet;
• A$5m for a Commercial Sector ZEV Innovation Fund; and
• A$298k for a study on "EV-readiness" in new buildings.