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Private toll roads need a shake-up

If you’ve ever driven in Sydney, Melbourne or Brisbane, chances are you’ve used – or steered clear of – a private toll road.

Those three cities are home to 22 private toll roads. And one giant company, Transurban, operates 18 of them: 11 in Sydney, all six toll roads in Brisbane, plus Melbourne’s CityLink.

So, how did Australia become so dependent on privatised toll roads? And what problems can it create for commuters, governments and the wider economy?

Public–private partnerships

Australia’s toll roads are mainly built and operated under what are called public–private partnership contracts.

Under this model, a private operator finances, builds and maintains a road in return for the right to collect tolls – often for decades at a time.

State governments have embraced this model because it allows them to avoid massive upfront spending, and shifts construction and financing risks onto private firms.

The modern toll road era arguably began with the contract for Melbourne’s CityLink in 1996, along with the creation of Transurban (a consortium of Australia’s Transfield Holdings and Japan’s Obayashi Corporation).

Transurban has grown into one of the world’s largest toll road operators, worth about A$45 billion. In the most recent financial year alone, Transurban brought in $987 million from Melbourne CityLink tolls alone.

Where the model breaks down

Public–private partnerships are sold as a way to shift financial risk away from government.

The problem is, private investors who fund toll roads build these risks back into the contracts they have with governments.

In some early toll contracts, the government included clauses cushioning operators against low returns.

For example, under the CityLink deal, Transurban was formally required to pay the Victorian government hundreds of millions of dollars in concession fees over the life of the project. But the contract also allowed the company to defer those payments if its internal rate of return fell below 10%.

That effectively shifted part of the financial risk back onto taxpayers.

Other long concessions guarantee annual toll increases – often whichever is higher of 4% or the rate of inflation – to shield financiers.

Predicting and managing road use

Our reliance on this model of road funding creates other issues too. One is the process creates incentives for toll operators to be over-optimistic when forecasting how many vehicles will use a proposed road.

A federal review of 14 Australian toll roads found first-year traffic was an average 45% under forecast and was still 19% down after six years. Studies show it’s a similar story around much of the world.

Companies bidding for a toll road contract have an incentive to put forward higher traffic forecasts, because it makes their proposal look stronger. If they expect more cars, they can promise more toll revenue and offer the government a better price up front.

On some contracts, this might lower the government’s initial costs, if the toll operator takes on the risk of how many people will use the road and banks on future tolls. But if the contract guarantees the government will cover any revenue shortfall, the risk shifts back to taxpayers.

The system also puts revenue ahead of optimising traffic flow. Toll contracts are designed to guarantee revenue for investors – not to manage demand.

That means operators don’t adjust prices to ease peak-hour congestion, and tolled roads don’t necessarily make the wider network operate more efficiently.

Little genuine competition

Transurban’s scale allows it to dominate bids for new projects, often out-competing smaller rivals. Over time, this has produced a monopoly-like situation across cities on Australia’s east coast.

In some cases, governments have extended Transurban’s concessions in return for funding other projects, without putting the extensions to open tender.

An example is Melbourne’s West Gate Tunnel deal, in which the Victorian government granted Transurban a ten-year extension of its CityLink tolling rights (to 2045) in exchange for delivering the new tunnel.

An independent review commissioned by the New South Wales government concluded Transurban’s dominance has created a market with little genuine competition.

Equity is a major problem

Then there’s the unfairness of the system as a whole.

For one, the burden of tolls is not spread evenly. Drivers in Sydney’s outer west and northwest often face weekly bills of $100 or more, which can amount to 10–20% of income for lower-earning households.

Many inner-suburban residents with access to better public transport can avoid these charges.

In Victoria, unpaid tolls can be converted into state-enforced fines – debts that can balloon into tens of thousands of dollars.

For trucking companies, tolls can amount to tens of thousands of dollars per vehicle each year. Faced with those costs, operators often have two bad options: take detours through suburban streets to avoid tolls, or absorb the charges and pass them on through higher freight rates.

The first option risks turning local roads into freight corridors, with added safety, noise and air pollution problems for residents. The second filters straight into the cost of goods and everyday living.

Rethinking the future of tolling

The first step towards fixing the system is fairer, more transparent contracts. Windfall profits – the extra gains a toll operator makes when revenues turn out far higher than expected – should be capped, revenue-sharing with governments made standard, and toll increases tied to performance rather than guaranteed indexations.

Oversight also needs to be genuinely independent and open to public scrutiny.

The second is a smarter pricing system. Analysis shows a network-wide distance-based charge in Sydney – a few cents per kilometre at peak times only, coupled with reduced registration fees – could cut congestion while raising billions.

Roads are public goods. Our toll system should treat them that way.The Conversation

The Conversation

 

Milad Haghani, Associate Professor and Principal Fellow in Urban Risk and Resilience, The University of Melbourne and David A. Hensher, Professor and Director, Institute of Transport and Logistics Studies, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

  •   22 October 2025
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7 Comments
JohnS
October 23, 2025

Toll roads are just a creative accounting process.

The cost of the road is eventually paid by the people of Australia, so no matter how you structure the arrangement, the people still pay.

The creative accounting allows for transfer of costs from State to federal governments. If State government owns the toll road, they pay for it. But if private enterprise owns it, then they get depreciation, etc as a tax deduction, thereby transferring part of the cost to the federal government

It also allows for state governments to avoid budget deficits and borrowings appearing on their balance sheet. This makes it look like state governments are better financial managers. However, the government will always be able to borrow money at a lower interest rate than a company, simply because it is impossible for the government to default on the loan repayment, so that bank lends at a lower rate.

But, there is an intangible advantage in private enterprise owning the road, and that is the time to complete. Private companies understand that the investment in the road does not generate any income until it is complete (and they start collecting tolls). Local members of parliament however get re-elected by people seeing that money is being spent in their electorate. Therefore, making the road building project last years (and being part complete and not giving any benefit to the community) gives the ongoing impression of money being spent in the local area, and the local member being seen as doing his job (getting money spent in his electorate). The alternative would be for the government to spend all their money in one electorate this year (and get the projected completed) and then spend in other electorates in subsequent years (with the first electorate getting no money for many years). This would result in the local member not getting re-elected because he is not getting any money spent in his electorate.

But it remains that the cheapest way (all other things being equal) for the government to own and build the roads, rather than using a toll road company

Robert G
October 23, 2025

Many moons ago, the then NSW state government introduced a levy ( no, not a tax, a levy ) of 3 cents per litre on petrol. It was to be for 3 years, and fund all future roads in NSW.
At the end of the 3 years it was extended.
Unfortunately this windfall got lost in the big black hole of general revenue, and none got spent on roads.
With the introduction of GST it disappeared forever,
Enter the private toll roads.
Good for the government, very profitable for the builders, but not so good for the users.

DW
October 23, 2025

I remember that well from the mid to late 80’s, with the propaganda signs “3 x 3 x3 - your fuel levy at work”. Another classic example is the original Gateway Bridge in Brisbane; the public was explicitly told that the tolls would cease once the construction costs were paid, which they have been many times over. Typical underhanded arrangement between government and corporates like Transurban.

Old lwayer
October 23, 2025

The Gateway toll was extended to pay for expanding the road network along that corridor. Without Transurban building that, we would not have the large freeway on the east.

OldbutSane
October 23, 2025

For the sake of both our health and the environment we need more road tolls, not less and every city should have a congestion charge. We need to get people out of cars and into public transport, cycling and walking. Too many people drive short distances (1-2km) too often. We'd all be healthier if we walked/cycled more often - and don't say it's dangerous as driving is too and in lots of cases it can be done really safely already - if more if us did it it would become even safer.

Graham W
October 23, 2025

Western Australia has no toll roads, but we get slugged when we head over the border. With AI, I hope that WA can use cameras to get some money from you Eastern Staters when you use our fine freeways. Otherwise, a flat fee when you cross our borders should be paid. Let's face it, we have already paid some of the cost of these roads by sending you some of our GST money.

Not Saul Eslake
October 23, 2025

Getting an extra $50 billion odd over and above your GST entitlement isn't enough for you?

 

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