Developed countries allocate between 3 and 5% of their GDP to transport infrastructure, but an efficient financing model has yet to be created. It is this absence of an efficient system of financing that provides the point of departure for the latest Report from the Barcelona Institute of Economics (IEB), entitled ‘The Financing of Infrastructure’ and which was presented this morning at the VIII FEDEA Workshop on Transport Economics. IEB researcher and Report editor, Anna Matas, believes that an “efficient road financing system must be able to internalize the externalities attributable to transport, ensure the gap between the price paid and the marginal cost does not become too big and consider the role private investment should play, to ensure that the rhythm of investment is not affected in times of crisis”.
In her article ‘The financing of transport infrastructure: an unresolved issue’, Matas describes how in Europe “airports and ports have been financed with user contributions, while payments for roads have been made out of the public budget or, in some cases, by the charging of tolls on high capacity roads”. Recent years have seen the adoption in some countries of the vignette system – a fixed payment valid for a certain time period – or the payment by heavy vehicles for each kilometer travelled.
This last point is analysed by KU Leuven Professor, Stef Proost, in a paper entitled ‘Making trucks pay for road damage in the European Union’. He points out how the specific tax that many European countries levy on trucks serves to “maintain the roads” and compensate for the specific “damage caused by their circulating on the roads and other externalities such as noise pollution, accidents and congestion”.
Initially, the predominant tax system applied to trucks in Europe was the vignette, but the price set was minimal. This means the main source of financing has become the tax on diesel – a measure that has also proved inefficient. “As trucks can fill their tanks and travel a minimum of 2,000 kilometres, they simply refuel where they can get the best deal”, explains Proost. Smaller countries have therefore opted to lower their diesel tax so as to obtain higher tax revenues, without their highways suffering too much damage from trucks that have to change routes in order to refuel. For example, in 2012 the diesel tax in Germany was 0.47 euros per litre, while in Luxembourg it was only 0.30.
The alternative to the diesel tax is a payment for distance travelled, which represents an additional cost for trucks. “The option chosen by the European Union to solve this is that the distance payment cannot exceed the average costs of maintaining the infrastructure”.
How citizens pay
FEDEA researcher, Ginés de Rus, analyses the differences between the infrastructure financed by using toll revenues and that financed by indirect taxes. In his article ‘Economic principles of infrastructure financing’, Rus states that “in both models citizens end up paying for the building work”, but the outcomes differ. “By paying via the taxes it is impossible to differentiate prices on the grounds of time periods or the types of vehicle that have used the infrastructure, which makes it difficult to assign a price that manages to cover marginal costs”.
Finally, Salvador Bertoméu and Antonio Estache, Professors at the Université libre de Bruxelles, analyse the role of private financing in their article entitled ‘Public-private partnerships in Europe: from the promises of theory to the failures of practice’. “Public-private partnerships (PPP) have become big business for banks, consulting firms and institutional investors, but we are witnessing major problems in monitoring compliance with the contractual commitments entered into and more often than not they require an ex post intervention to address contractual omissions. The regulations need to address these but they are failing to do so”.
Between 2000 and 2016, a total of 1,563 PPP projects, worth 306.5 billion euros, were signed in Europe. Hundreds of initiatives that have left a list of well-documented failures in their wake, including, the authors, remind us, “the numerous cases of corruption linked to initiatives of this type in Spain, recurrent political interference in the evaluation of projects in Belgium, France, Spain and the United Kingdom and the massive renegotiations of the toll motorways in France, Spain and Portugal involving the transfer of the risks of the PPP to the taxpayers”.