By Angela Dorizas

The review of Australia’s tax system may include a proposal to replace petrol taxes with congestion charging, according to Treasury secretary Ken Henry.

In his speech to the Committee for Economic Development of Australia (CEDA) last week, Dr Henry indicated that his review is likely to include proposed reform of road taxes.

Dr Henry said road pricing was “fast becoming one of the biggest public policy issues of our age”.

He said an estimated $9 billion was wasted each year in avoidable congestion costs and was likely to reach $20 billion by 2020.

“In the face of these costs, why have we stuck to the traditional ‘fuel tax and rego’ model for roads, when sensible pricing seems to offer such larger benefits?”

Dr Henry recommended replacing petrol and car registration charging with congestion taxes and providing appropriate compensation to road users.

“At least one automobile association supports road pricing as long as road users are compensated by the abolition of fuel excise,” he said.

“In London, commuters were compensated through additional funding for public transport.

“An innovative study in Seattle gave some drivers credits to pay to drive on congested roads and let them cash in the savings they made by driving at off-peak times or choosing other modes of transport.”

Dr Henry’s proposed congestion charge has been met with mixed reactions from state and federal politicians.

The Greens said they would only agree to congestion taxes if public transport, cycling and walking facilities were dramatically improved in major cities.

Greens Senator for WA, Scott Ludlam, said the cost of urban traffic congestion was projected to double by 2020.

“As our recent Public Transport Senate Inquiry concluded, congestion charging can help reduce these costs by discouraging motorists from travelling at the most congested times and places,” Mr Ludlam said.

“However, the Greens believe that a congestion tax would be an unfair impost unless significant improvements to public transport and other non-driving modes of commuting, such as walking and cycling facilities, are made at the same time.

“We have to learn from the London experience and make sure that the tax isn’t absorbed into administration costs and consultancy fees, but is ploughed directly back into providing world-class public and active transport.”

Queensland Treasurer Andrew Fraser said congestion charging was not necessary in Brisbane, but if it were to be introduced fuel taxes would have to be reduced.

“I think Brisbane is a bit different to Manhattan or London,” Mr Fraser told ABC News.

“I think if it was ever to be contemplated, the quid pro quo would need to come in reducing other taxes on motorists.”

ACT Chief Minister Jon Stanhope said congestion charging was worth considering because it was likely to encourage people to use public transport.

The Henry Tax Review will deliver its report to Treasurer Wayne Swan in December.

Finance Minister Lindsay Tanner said the Government would look carefully at the findings of the review, but would not provide a guarantee that it would have a specific set of policies before the next election.