Last month the Netherlands passed the Kilometre Charge—a new piece of legislation that the Dutch Government claims will reduce CO2 and fine particle emissions by more than 10 per cent, kilometres travelled by approximately 15 per cent and the number of traffic jams by half. On top of this, a 6 per cent increase in public transportation usage is expected. And in addition to these public benefits, as the purchase tax on new motor vehicles is phased out (which accounts for 25 per cent of the purchase price for a new vehicle), prices of new vehicles will drop. The estimated welfare gains from the new law come in at 1 billion euro a year
1. Does this sound too good to be true? How will this miraculous new law work?
In effect, the Dutch Government has come up with the 21st century version of the toll road. Every vehicle will be equipped with a GPS device that will record when, where, and how far a vehicle travels. The information will be sent to a collection agency that will draft invoices and send them to motorists. The kilometre charge is scheduled to be implemented starting in 2011: at first it will apply only to commercial trucks—from there it will gradually be phased in to include all vehicles by 2018.
The Kilometre Charge will replace two currently existing taxes: the road tax (which depends on weight, type of engine, CO2 emissions, province of residence and is paid annually) and the purchase tax (a 25 per cent tax on new motor vehicle purchases). Instead, the Dutch will pay a fee for kilometres traveled in the Netherlands on any road. The tariff will vary by vehicle type (passenger cars, private/commercial vans, buses and heavy trucks) and each type will have different criteria for establishing the base tariff: for example, for cars it will depend on their CO2 emissions, truck tariffs will be dependent on weight. In addition, there will be surcharges based on time of day (so-called rush hour surcharge) and busyness of the street (the “bottleneck” surcharge) that local municipalities will determine. On average, drivers will be charged 3 euro cents per kilometre driven and it will increase to 6.7 euro cents in 2018. The proceeds of the tax will go to an infrastructure fund.
Of course, there will be exemptions: handicapped vehicles, agricultural tractors, speed-restricted vehicles, taxis, pre-1987 vehicles, motorcycles and all public buses will be exempted from the Kilometre Charge.
In addition to the aforementioned environmental and congestion reducing benefits, the new tax should actually make vehicle ownership more accessible to low income drivers. Counterintuitive? Not really: by eliminating the vehicle purchase tax and road tax, the cost of acquiring and owning a vehicle has been reduced significantly. Effectively, vehicle owners will now pay for using the road, rather than owning the vehicle. Whether increased car ownership jives well with the stated environmental goals of the measure is questionable, but the increase in demand will surely be a boon to auto sellers in the country!
Such a bold new piece of legislation is not without its detractors, of course, and many of their points merit consideration.
For instance, concerns have been raised about the burden this will place on small businesses and the extent to which consumers will face higher prices are a result of the new tax. Others argue that the Kilometre Charge will not, in fact, result in fewer cars on the road. The second argument stems from the reduced cost of vehicle acquisition and ownership—as car ownership is democratized, people previously using mass transit may now start driving their own cars.
Some argue that simply increasing the fuel tax would have been easier to implement and accomplish the same goals. But would it? This rings hollow. The Kilometre Charge allows the authorities not only to increase the cost of vehicle usage, but also to target congestion by time and geography. Higher gasoline prices cannot do this. Additionally, the Kilometre Charge is fuel-type neutral, i.e. it does not matter what kind of fuel a vehicle uses (gasoline, diesel, natural gas, electric, hydrogen, etc).
A lot of detractors of the tax stated privacy concerns. It is true that it seems that some privacy will be given up. However, the Dutch Government indicates that information will be kept private and will not be stored once billing is complete. Furthermore, in a world where systems like GM’s On Star already have remote access to privately owned vehicles and can even be used to remotely slow down such a vehicle, this doesn’t seem to be so much further down the rabbit hole.
Has this been tried elsewhere? Not exactly. London, England has implemented a congestion targeting system that targets drivers in the city core. New York and Oregon have tried mile taxes and North Carolina was considering one. A simple mile tax, however, is unfair to drivers who may do much of their travelling out of state. Furthermore, it would arguably be possible to simply dodge the tax by registering one’s vehicle out of state. Finally, unlike the Kilometre Charge, none of the U.S. proposals were implemented in a revenue neutral way—licensing fees and other vehicle taxes remained in place, making a mile tax an unpopular measure as it adds to driving expenses.
So, would a system like the Kilometre Charge make sense in Canada? Clearly we have a significantly different population density than the Netherlands—imagine packing our entire population into New Brunswick! Canadians’ social mores are also different, with a much greater emphasis on privacy, which probably makes implementation of such a tax politically untenable. Nonetheless, there are some sound principles at play: taxing drivers according to their use of the road has the merit of fairness, and the ability to target congestion (time and place) AND pollution (varying rates by CO2 emissions) both in one measure seems highly efficient. Still, as anyone who has hopped on the 407 to Toronto knows, tolls are not a guaranteed congestion cure.
1 www.verkeerenwaterstaat.nl