Economist: The Good, Bad and Ugly of e-tolls

The 'correct' price of any good or service is of the utmost importance for the proper working of an economy. Economic agents (that's all of us) will decide how and how much of a particular resource to allocate depending on its price.

For instance, if electricity is priced incorrectly, too much (if the price is too low) or too little (if the price is too high) will be consumed. The result will be that a resource will not be allocated optimally and the economy will suffer as a result - and Eskom has proved this point very well. This economic 'law' applies to toll roads as well.

Furthermore, it is also of importance to allocate the cost of an expense correctly. If my neighbour pays for my electricity, I will have no regard about how much of the stuff I use - economists call this the 'internalisation of an expense'. From this comes the 'user-charge principle' which simply says that the one that uses a resource should pay for it. Apart from the fact that it sounds 'right', it has a solid base in economic theory.

Additionally, things like tolls can also be used very effectively to achieve other things. In London, for instance, changing toll fees are used very effectively to regulate traffic in the city centre.

So there is no doubt that tolls have very solid arguments to support it.

But there are a number of requirements that are important.

First, since roads are not like beer where 'normal' supply and demand forces can determine the correct price, some other mechanism has to be used to determine the correct price. Here our proposed toll system falls flat. We are simply not given all the info to check how the prices are determined - some information is 'confidential'.

As far as I'm concerned I (and all of us) should have total access to all the information about the whole project because I am the user, I am the taxpayer and the project is a public project. Since I do not have all the info about the project I cannot determine if the price is correct and I also cannot determine if the collection fees are reasonable - they do sound quite steep to me! Also, I want to know everything about the parties involved in the whole project because I want to be sure that there are no monkeyshines going on.

I don't care if foreigners are involved but I want to be sure that I get the best possible deal - I can't determine that without having full access to all the information.

Another requirement for a 'good' toll system is that no exceptions should be allowed. This is very important because the moment exceptions are allowed the basic economic arguments in favour of tolls are lost. By allowing taxis not to pay tolls, for instance, the cost of roads are 'mispriced' for taxis, leading to a misallocation of this resource.

In addition, by capping the amount a user will pay the whole system is undermined because the user-charge principle says that if you use more you must pay more. And anyway, tolls are supposed to also regulate traffic and by capping tolls this benefit of tolls is undermined.

But I think the whole toll disaster and the massive public opposition to it is based on something more sinister. In the past state expenditure was used to pay for all sorts of things. This included stuff like spending on social/current expenditure and also a significant part on capital expenditure.

However, for the past fifteen years or so social expenditure (grants, education, housing, health) were even more prioritised while capital expenditure mostly fell to the wayside. In the meantime our capital stock started to deteriorate while sufficient new infrastructural expenditure was simply not done - again the Eskom disaster is a good example, but the roads are an equally good illustration.

So suddenly we realised we must spend more money on capital maintenance as well as on new capital. Unfortunately, the money that was traditionally spent on capital has now been earmarked for other more voter-friendly social expenditure items.

Since the state run out of money new sources of funding needed to be developed and tolls were an obvious route. In a way the state has 'privatised' this new tax. And that is why people are angry. The tax burden has gone up quite substantially in recent years and the tolls are seen as just another tax. If my existing tax burden can be reduced I will be more than happy to pay for the roads (provided it is properly implemented). So the toll revolt is actually a tax revolt.

So how to fix this disaster? Obviously the best way is to do the toll thing properly but since that is unlikely to happen the only workable alternative is to increase the fuel levy. This will also lead to more inflation and more pressure on an already maltreated consumer. The other provinces will have to pay for Gauteng's roads but they already get a massive transfer from Gauteng - so stop complaining. An option is to increase only Gauteng's fuel levy. It is practical and legal but that will result in a hefty increase in Gauteng's fuel levy.

The way the whole toll saga was managed is an exact example of how to cock things up. And as always we, the consumer, will eventually pay again for the ridiculous decisions our political leaders made, as always…

Dawie Roodt is Chief Economist at the Efficient Group.

To read Cosatu General Secretary Zwelinzima Vavi's views against e-tolling click here.

To read Sanral CEO Nazir Alli's opinion on the real benefits of open road tolling _ click here._