Wednesday 30 March 2022

RUC rebates - how would you do it?

Drivers of diesel vehicles pay their share of road building and maintenance costs through road user charges, levied per kilometre driven, with higher charges for bigger and heavier vehicles.

When the government announced a petrol excise holiday in response to rising fuel costs (a silly policy), it obviously hadn't thought through how to apply it to Road User Charges.

If you were the poor official tasked with making this work, how would you do it? 

The complexity isn't in that there are lots of different charges for different-sized vehicles - you can sort that out with a calculator.  

The complexity rather is that:

  • Drivers buy RUC in advance of using it, generally in increments of 500 or 1000 km;
  • You can buy large amounts of RUC. There's *some* limit on it to prevent stockpiling against future levy increases, but as best I can tell, I could go and buy 99,000 km of RUC right now;
  • Cars and trucks transfer ownership;
  • Amount driven varies considerably across people and vehicles, and potentially over time as well.
All of this was obvious when the government did its too-typical government thing and just announced the policy without having worked through any detail. Normal process followed by better governments will first canvass the Ministries for advice about how to do the thing, put up options, consult with affected stakeholders to see what they've missed, update the options, and pick something that won't be completely terrible. 

It's pretty obvious they didn't do any of that.

So, if you were the official told to sort this mess out, what could you do?

The simplest first cut that would work for most vehicles would just base it on average monthly kilometres driven between Warrants of Fitness. Odometers get checked at WoF. New cars can go a couple years between WoFs though. 

So announce that every diesel vehicle will get free RUC based on average monthly kilometres travelled between the last WoF and the next one, after the next WoF odometer check. Whatever the percentage reduction in petrol excise was, apply that percentage to average monthly kilometres driven, multiply by 3, award the RUC at the end of the period.

But that can be a long way off for some vehicles. So you'll need to make provision for that. Say that diesels can go into a VTNZ or other WoF location for an odometer check and immediately be awarded RUC based on the average kilometres driven per month since the prior odometer check (so long as that was at least a month earlier). And you'll have to pay those centres for doing the odometer checks and filling in the paperwork. 

And then it starts getting complicated.

The petrol excise holiday is free money, not free petrol. So you'll have to give an option for a cash-out in lieu of a RUC award. Some people might prefer having the cash; others will be planning on selling the vehicle before they'd use the RUC. But you're going to need some payment mechanism and that's going to be harder than just figuring out how to put free RUC onto a licence. 

Some vehicles will have changed ownership since the last WoF. Was the odometer checked when it was sold? The owner will claim that the car got a lot less use under the prior owner and so the average will be wrong. What do you do with that? They might not be lying. 

Still others will claim that their vehicle is used very intensively during the period that coincides with the petrol excise holiday, and not much during the rest of the year. Many of them will be lying. But some could be telling the truth - and you just won't hear much complaint from those who don't use their car much during that period and really use it during the rest of the year. 

In both those cases you're then going to need to let them go and get their odometer checked to establish a baseline, then get checked a second time. The queues at the odometer checks might get long. And you're going to have to pay twice for the checking. 

All of that sucks. For the simple case where people are happy just to get free RUC after their next WoF, it's pretty easy. But there will be plenty of people who aren't. And for them, you're likely going to need some odometer checking system, and a way of paying people out. 

But other options aren't great either.

If you let people buy RUC at a discount they can just buy tons of it to use later. Petrol is expensive to store. Unless you've got a giant farm tank kicking around, you're going to spend more on jerry cans than you'd save in excise discounts. And storing it in other containers would not work out well. You can't just stick it into an old milk jug and hope you have reliable petrol that hasn't leached out (or had plastic leach in) months later. But RUC - that's just a piece of paper. 

You could limit the amount that people are allowed to buy during the period, but how do you know how much somebody really needs to drive? You can't base it on prior driving history either because needs may have changed. It would sound simple to just look at the total amount of RUC previously purchased, figure out the average monthly amount used, and give a discount on buying a 3-monthly amount and no more - but you'll hit into all of the problems around people with idiosyncratic usage and then you either have to tell them to lump it, or set up all of the odometer checking stuff. 

Anyway. Jo Moir put the questions to Minister Wood, and got an answer entirely consistent with that the government put zero thought into this stuff before announcing it was going to do it. 

Last week Transport Minister Michael Wood confirmed RUCs would be cut across all 85 vehicle classes by 36 percent between late April and late July, allowing time to implement the changes.

“I want to assure road user charges payers they will get three months of reduced rates, even with the later start date. The complexity of road user charges means that a few more weeks are required to put the reduced rates in place,’’ Wood said.

For two weeks Newsroom has put questions to Wood’s office asking how the Government will stop diesel users from rorting the discount by stocking up, and whether people who had bought RUCs prior to the discount period would be compensated.

The only response Newsroom has received to date is that “agencies are currently working through the implementation of the announced RUC changes and any flow-on implications’’.

Wood’s office told Newsroom last Wednesday, and reiterated on Monday, that the minister is expecting further advice in the coming days.

Whoever in the Ministry has been stuck having to square this circle, because the government went off and announced something that couldn't obviously be made tractable, deserves a beer. 

Ardern told Newsroom the Ministry of Transport and Waka Kotahi knew the Government wanted to find a way to offer relief and weren’t caught on the back foot when the announcement was made.

She insisted the delay was simply a case of working through a complex problem and communicating it to diesel users and the trucking sector as quickly as possible.

For those needing to purchase more RUCs ahead of late April it remains to be seen whether they’ll receive all the 36 percent discount, and when it will back-date to.

No new advice on how to overcome the issues with the diesel discount was presented to ministers at Cabinet on Monday.

What a mess. They should have just announced a carbon dividend. 

FWIW, we bought a diesel back in November. We're a one-car family; waiting 2 weeks for a new alternator to show up for our old Honda Odyssey wasn't great. So we got a Mazda CX-8. Our first diesel and our first encounter with the RUC system. 

It's all pretty straightforward, but I really didn't like the risk of running out of RUC before the next batch of RUC showed up in the mail, so I bought 5000 km worth of it - shortly before the excise holiday was announced. 

I will buy as much RUC at a discount as is permitted by whatever system they set up. But I'd really not want to have to drive somewhere to get an odometer check. Ugh.

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