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How will autonomous and zero emission vehicles affect government finances?

How zero emission vehicles will hit government finances

As society switches to autonomous, zero emission and electric vehicles in the near future, Australian governments will lose a number of significant revenue streams. Understanding how this transition will take place and its impact on government finances will be critical to planning and delivering a range of public services in the future.

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Government revenue is closely linked to vehicle ownership and usage

Australian governments generate a significant proportion of their revenue from vehicle-related fees and charges such as stamp duty, registration and driver licence fees, vehicle-related infringements and fuel excise. They also direct substantial expenditure to transport-related infrastructure, such as roads and public transport, and services, such as road safety enforcement. 

In Victoria alone, estimated income derived from selected vehicle-related fees and charges totalled over $5 billion in FY15 or approximately 10 percent of all state government revenue.1,2 For the same period, local governments in Victoria collected an estimated $130 million in parking fee revenues, and the Commonwealth Government collected more than $2 billion in fuel excise from Victorian motorists.

Understanding the shift to new technologies

The impact on government finances will be influenced by the emergence of the AV/EV technologies, and the manner and extent to which these technologies are adopted and used by society. The key changes expected to impact government finances are:

  • a potential shift from privately-owned, single-use vehicles towards shared ownership models 
  • changing transport related investment requirements for governments 
  • improved road safety outcomes arising from developments in vehicle technology 
  • increased compliance with traffic rules and regulations and reduced revenue from fines.

Broadly speaking, the nature of the financial impact of AV, zero emission and EV technologies will depend on whether consumers use these in a similar way that we use traditional vehicles (that is, as privately owned assets for personal single use), or whether new models of vehicle ownership and use will be adopted (for example, shared ownership models). A future scenario dominated by shared use AVs will substantially reduce revenue from vehicle registration and driver licence fees, and infringement and parking related income.

Critically, the financial impact of these technologies on governments will progressively increase over time in line with uptake and changes in consumer behaviour. Governments will need to start considering the applicability of current revenue and expenditure arrangements, and examine their viability and the impact of changes to these current arrangements.

Impact on government finances

KPMG modelling undertaken for Infrastructure Victoria found that the emergence of AVs, zero emission and EVs and the resulting changes in consumer behaviour could negatively impact government finances in Victoria by up to $12.8 billion per annum by 2045-46. Extrapolated across Australia, the estimated negative impact on government finances may be as great as $50 billion per annum (depending on the assumed uptake scenario).3

How autonomous and zero emission vehicles may affect government finances

A range of scenarios for Victoria were modelled, including privately owned AVs, fleet style AVs, adoption of different technologies, as well as slow and fast adoption scenarios. The impact on key government revenue and expenditure categories is largely directionally consistent, but varies in magnitude across scenarios (see chart above). These categories are not intended to represent the full impact, but were considered to be most material and therefore requiring further analysis.

KPMG analysis indicates that the net negative impact on government finances in Victoria (including Victorian local governments, the Victorian Government and Commonwealth fuel excise revenue that indirectly flows to Victoria) across all scenarios ranges between $5.1 billion per annum by 2046 under a slower uptake scenario, and $12.8 billion per annum by 2046 for the fleet-style AV scenario.

Governments should encourage adoption but also reconsider their revenue models

The large-scale adoption of AVs, zero emission and EVs in Australia has the potential to change the lives of all Australians and offers an opportunity for governments and the wider community to realise significant economic, social and environmental benefits.

While these benefits and continuing technological improvements will drive increasing adoption, the analysis of the Victorian revenue impact shows it is likely to be highly disruptive to the existing revenue model underpinning road funding and maintenance and other government services. The analysis provides a point-in-time estimate of the financial impact under different scenarios, but in practice the impacts will materialise progressively as vehicle technologies evolve and adoption rates increase.

If the current revenue model remains unchanged following the adoption of these new technologies, governments will be increasingly resource constrained and less able to build and maintain roads and invest in other transport initiatives. Key revenue sources, such as fuel excise and vehicle registration were designed and implemented decades ago. While these charges have served Australia well, with the rapid changes occurring it is now time to consider options that will serve better for the next generation.

New arrangements should aim to address the negative financial impacts while continuing to encourage the adoption of the new technologies to help secure the social, economic, and environmental benefits associated with their use.

Alternative funding models for governments such as distance or area-based vehicle charges are well documented, and should form part of the thinking for the future. These funding models would not only help to fill the revenue gap that will arise following the introduction of AVs, zero emission and EVs, but could also be used to improve road use efficiency by introducing a charge that better reflects the marginal public cost of road usage. These charges could also include price differentiation, with a higher charge on congested roads and a lower charge on underutilised and regional and rural roads.

References

  1. Includes registration fees, license fees, TAC premiums, vehicle stamp duty payments, infringement revenues, public transport farebox revenue and congestion charges.
  2. Victorian Government, Statement of Finances, 2015-16, (PDF 2.43MB)
  3. This estimate is based on an assumption that Victorian per capita revenues are representative of the whole of Australia, and the population projections contained in the Australian Bureau of Statistics dataset Population Projections, Australia, 2017 (base) – 2066.

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