Abolishing tolls: Short-term gain, long-term pain

THE Pakatan Harapan's (PH) manifesto with five pillars, 10 promises to deliver the first 100 days, and 60 promises during its first term is comprehensive and ambitious covering economic, political and social reforms.

High marks must be given for the political and institutional reforms agenda. The rakyat have for too long suffered under all types of repressive laws and corruption of public institutions. A basic overhaul in this area is necessary.

What about its economic agenda? Its efforts to address the economic woes of the people are commendable. Growth in Malaysia was unequal and much of it squandered by the ruling elite. In trying to improve the lives of ordinary people it faces huge challenges. It promises to deliver more services such as housing, public transport, health and basic food to the people, and at the same time to reduce their cost of living by abolishing the goods and services tax (GST) and highway tolls. The first set of measures will see a rise in government expenditure and the second a fall in revenue. It plans to cover the gap through elimination of leakages and waste resulting from unnecessary mega projects and corruption, and the replacement of GST with SST (sales and services tax).

Politicians make all types of promises in their campaign; some of them they keep, others are simply a means to garner votes. After the dust settles and the euphoria subsides, the new government has to face realities and get down to examining what it can and cannot deliver. The time for political campaigning is over; it is time to govern responsibly.

The promise to abolish toll is one that must be addressed responsibly and not politically. What are the pros and cons of abolishing tolls?

The main opposition to toll collection is not so much the need to pay for use of the highways but the grossly unfair terms of concessions given to concessionaires by the government. According to a senior transport engineer, toll concessions in Malaysia are highly unequal and unfair agreements need to be urgently rectified. Toll highways are BOT (build, operate and transfer) projects. The concessionaires who operate the highways are often also the contractors who build them. They inflate their costs both at the stages of construction and operation. Sometimes, the government even subsidises the construction and operational costs of highways of these private companies. For example, in the case of the MEX highway, the government provided a RM1 billion grant, equivalent to 75% of construction costs, to the concession holder. The concessionaire invested only a small portion of the remaining costs and borrowed the rest. Furthermore, for some highways the government compensates the concessionaire if the traffic volume or rate of return falls below a certain level. In 2016, the government paid out over RM4.07 billion as compensation for 28 toll highways.

The fallout from the 1MDB scandal was much more than revealed by the previous government. Federal debt has now exceeded RM1 trillion posing huge challenges to its fiscal position. The rakyat can understand that in order to meet these challenges, some economic promises may not be fulfilled for good reasons. The government must do the following.

It must set up a committee to review each and every concession, to rectify the unequal and unfair contracts. It must also appoint an independent study to estimate the costs of renegotiating and/or takeover of the toll highways before making a final decision. Estimated costs in the taking over of toll highways by the government ranged from RM383 billion (by Pemandu) to RM50 billion (by PH); the latter is on the low side as the outstanding bonds of 22 highways alone is RM55 billion. There are 31 tolled highways at the end of 2017.

Other options that can be considered are gradual reduction or partial reduction of tolls; introduction of different toll rates for different vehicle categories. For example, no tolls for buses and public vehicles; free or reduced tolls for cars with three or more passengers. As long as the government can be transparent and provide good justification for its decision, the PH government has at this juncture the goodwill of the rakyat to accept it. This is absolutely necessary in order not to plunge the government further into debt.

Abolishing toll rates is a short-sighted policy for both economic and environmental reasons. First, abolishing tolls benefits the upper 50% of the population more than the lower half. One often thinks that is fairer to keep roads free of tolls. But studies have shown that the benefits of free roads accrue more to the affluent than to the low-income group as the rich drive more. Abolishing tolls subsidises people who drive, and is unfair to taxpayers who do not drive. On the other hand, collecting tolls and using the revenue to subsidise public transport would be a much more equitable policy.

Second, abolishing tolls eases hardship in the short-term; but by encouraging ownership and use of private vehicles it places more financial burden on the rakyat.

Car ownership and use is expensive. It requires servicing car loans, paying for repairs, fuel, insurance and depreciation. All these easily account for 20-30% of a low-income household's expenditure. It is a heavy financial burden that would not be necessary if there is good public transport. Hence, the government should be directing all its transport expenditure into building first rate public transport systems so that the lower income households can be freed from the financial burden of car ownership. This would immediately raise their level of disposable income.

The government also should be doing everything possible to wean people away from private vehicles into public transport particularly for commuting as in Hong Kong and Singapore where public modal share of transport is well over 60% as compared to below 30% in Malaysia. When driving is no longer a necessity but a luxury, those who use roads should be paying for the privilege and this revenue [Which tax?]can be used to subsidise public transport for the masses.

Dr Lim Mah Hui was formerly a professor, international banker and Penang Island City Councillor. Comments: letters@thesundaily.com