Expressway Tolls: 1,000 Yen or Free?

Hidetaka Yoneyama
Senior Research Fellow, Economic Research Center

September 8, 2009 (Tuesday)

Impact of the 1000 Yen Upper Limit

An upper limit of 1000 yen (roughly US$9.5) was placed on expressway tolls for holidays as part of measures to stimulate the economy. The pros and cons of reducing this even more are garnering attention. This is because if the DPJ (Democratic Party of Japan) assumes power, expressway tolls will in principle become free (social experiments such as sequential increase of the discount rate are being implemented, and the DPJ would push expressway tolls towards free while confirming the effects of these experiments), creating an even greater impact.

Economic revitalization from lower travel and transportation costs is emphasized as a merit of abolishing expressway tolls. Expected effects include a reduction of time costs from less congestion as traffic disperses from local roads to expressways; stimulation of human movement and physical distribution as a result of cheaper transportation costs from rural to urban areas; stimulation of rural tourism; and population decentralization from urban to rural areas. If made completely free, toll workers and the ETC system would also become unnecessary.

What were the effects of the LDP’s (Liberal Democratic Party) 1000 yen upper limit? Holiday traffic on rural expressways was 1.5 times higher, and tourism was boosted through campaigns promoted in conjunction with the discounts. Increased use of expressways during the May holidays, however, led to heavy congestion on the Honshu-Shikoku Bridge and elsewhere. In addition, increased expressway traffic meant a decline in passengers on competing ferries and JR (Japan Railways), in some cases dealing a financial blow. There are also concerns that substituting public transportation with cars increases CO2 emission and therefore runs counter to environmental measures. Regarding population movement, the effects of discounting tolls to 1000 yen extended as far as increasing day trips, and likely had little impact on population decentralization.

In summary, while tourism is stimulated to a degree, the break down of the traditional transportation cost order also produces adverse effects. Regarding expectations for eased congestion on local roads, the concentration of expressway traffic on holidays in some cases led to expressway congestion. At this point it is difficult to say that the discounts as a whole had any positive effect on the economy. The environmental problem of increased CO2 emission from the shift from public transportation to cars also cannot be ignored.

Solutions to the Adverse Effects of Free Expressways

In the event that the DPJ assumes power and in principle abolishes expressway tolls, the potential for these adverse effects to worsen is undeniable. Given the stimulating effect of the initial discounts on tourism, increased movement is expected to have an even greater impact on regional revitalization. Free expressways would also encourage people to live rurally and commute to cities using expressways, perhaps creating a modest decentralizing effect on the population. On the other hand, the competing modes of transportation and the environment are expected to suffer even more.

There are ways to address these problems. One idea for mitigating environmental damage to the extent possible is limiting expressway use to environmentally friendly “eco-cars” or, in the future, to electric cars with no CO2 emission. Charging cars with high CO2 emission is another option. This is based on the idea that cars that use expressways for long distances will bear the maximum burden in terms of the environmental load. In conjunction with this, another possible method to encourage the spread of eco-cars is to continue the current purchase subsidies but under stricter standards.

Regarding the financial hit to railways, shipping and so on, one idea is to create a new source of revenue by promoting a modal shift (shifting truck transport to railways and ships). This would require, at least in the initial stages, subsidies to transporters for the business change and to users for the cost—the slow development of modal shifts in the past is largely due to the lack of merits in terms of cost.

Abolishing expressway tolls would break up the traditional order of transportation costs, and significantly alter demand for each mode of transportation. By leveraging this and promoting the spread of eco-cars and modal shifts, however, it is possible to move in a favorable direction.

Who Shoulders the Cost of Expressways?

We have introduced ideas for leveraging free expressways and guiding in an environmentally friendly direction. Using free expressways to promote some kind of big change, however, is significant in the sense that it would essentially render unviable the traditional framework for expressway construction—a pooling system that collects tolls from the various expressways and uses revenue from the cash cow routes to pay off debt for the money-losing routes.

This framework has long been criticized for hiding unprofitable routes and making it easy to build unnecessary roads. This will become impossible if expressway tolls are abolished. Construction of new expressways cannot be financed out of pocket—the infusion of tax money will become essential. As a result, in general it will be easier to check (however, the current system also allows for the infusion of tax money, and it is questionable whether checking is adequate). Before the pooling system was introduced in 1972, the original plan was for the Tomei and Hanshin Expressways to pay back debt over 30 years and then become toll-free.

Even if the pooling system is eliminated, however, debate remains over the pros and cons of tolling. Using tolls to cover the debt of other expressways is illogical, but at the same time it is reasonable to think that users should pay for the maintenance costs of the routes used. Putting aside the debate over the 1,000 yen level, in this case tolls would clearly be lower than current levels.

If made toll-free, construction, interest, and maintenance costs would be covered entirely by tax money. This would shift the burden from expressway users to all citizens, a fundamental change in the traditional way of thinking (which holds that construction, interest, and maintenance costs are paid off with toll money, after which maintenance costs are covered by tax money). Grounds for such change would be that the benefits of expressways can be enjoyed not only by users, but also by all citizens through economic revitalization. The DPJ’s proposal, however, only emphasizes “toll-free”, and does not touch on the fact that the burden will be shifted from users to all citizens.

The DPJ first highlights “lower living costs” as an effect of toll-free expressways, and emphasizes this merit only. It should explain to the public, however, that citizens　pick up the tab, and that even with a greater tax burden the merits are still strong. The DPJ also needs to sufficiently show—including the solutions offered here—how to overcome the clear adverse effects of the LDP’s “social experiment” of lowering the tolls to a maximum of 1000 yen.