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July, 2004:

The high toll of price distortion

The high toll of price distortion


27 Jul, 2004

Published in the SCMP:

Excessively low tolls at the Cross-Harbour Tunnel are distorting traffic patterns, adding to congestion, increasing pollution and health costs, and providing invalid justification for plans to build more roads along the harbourfront.

Of the three harbour tunnels, the Cross-Harbour Tunnel provides the highest number of convenient connections, the Eastern Harbour Crossing the second-highest number of convenient connections, and the Western Harbour Crossing the fewest.

In a market economy, the price of a product or service reflects supply and demand. Under free market conditions, Cross-Harbour Tunnel tolls would be the highest, with the Western Harbour Crossing charging the least. The reverse is actually the case, and the Cross-Harbour Tunnel is causing the distortion.

Since its opening in 1972, its tolls have not kept up with inflation. In 1972, private cars paid $5. They now pay $20, but the inflation-adjusted toll should be $36. Taxis paid $5 in 1972 and now pay only $10, but their toll, too, should be $36. Heavy-goods vehicles originally paid $20. They now pay $30, but should be paying $144. Amazingly, buses pay virtually the same as in 1972, and the average bus passenger contributes less than 25 cents.

The Cross-Harbour Tunnel is government-owned. It is a public asset and operating profit helps keep our taxes down. Only users benefit from artificially low tolls and there is no justification for them to be subsidised by the rest of the community, or for us to suffer the increased congestion, noise, air pollution and health costs resulting from the consequent elevated traffic volume. The community is entitled to hold the government accountable for failing to charge enough for the use of this publicly owned asset. Cross-Harbour Tunnel tolls should be raised to inflation-adjusted levels at least, so that the element of subsidy is removed.

Allowing the tunnels to openly compete and set their tolls according to supply and demand is another possibility to be considered.

Apart from inflating traffic volume on each side of the central harbour, unfair competition from the Cross-Harbour Tunnel adversely affects the entire public transport system, depressing fares and causing other problems.

Total vehicular traffic volume is increased. More cross-harbour journeys take place. More people choose to live and work on opposite sides of the harbour, and ultra-low-cost public transport encourages people to live at a greater distance from where they work, further increasing traffic volume. If Cross-Harbour Tunnel tolls were raised to inflation-adjusted levels and tolls at other tunnels were lowered, traffic volume would drop at the Cross-Harbour Tunnel and increase at the others. The total number of individual cross-harbour road journeys would decrease and traffic volume, noise and air pollution would reduce in areas near the Cross-Harbour Tunnel.

Another obvious strategy is to charge higher tolls at peak times. A heavy-goods vehicle pays the same whether it passes through the tunnel at the height of the rush hour, or at 3am. This does not conform to the principles of a market economy, where the price charged reflects supply and demand.

From time to time, the government has floated the idea of road pricing as a way of reducing traffic in central areas. Charging an appropriate price for the use of the Cross-Harbour Tunnel is the obvious place to begin. More importantly for the long term, where failure to implement appropriate tolls for tunnel use results in planning decisions to build more roads, error compounds error to the permanent detriment of the environment and the community. The government should ignore the lobbying of vested interest groups and do what is right for the community as a whole.

Robert Wilson is a financial consultant based in Hong Kong.