Nova workboard

a blog from young economists at Nova SBE

S(CUTS)

In Portugal, until 2010, there were highways without costs for the users, they were called SCUTS.

Between October 2010 and December 2011 these started to be toll roads, so the users had to start paying a fee. Although highways have certain advantages, when consumers have to choose between faster or cheaper, recent data had shown, they prefer cheaper, once in these last years they have been facing a very restrictive budget constraint.

The unavoidable payment of this fee has a crucial consequence: the consumers use less the ex-SCUTS, benefiting less from them.

The ex-SCUTS registered a fall in the diary average traffic above 6.700 vehicles between April and June.

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In the first trimester, comparing with the corresponding period from 2012, these falls were around 10000 vehicles a day.

This fee reduces the utility of the consumers, in the sense that their choice is more limited, not being able to achieve a level of utility as elevated as they did before this compulsory fee.

Another important result of the burden with this fee occurs mainly in accesses to the interior of the country. These fees are making it more expensive to transport the goods causing a kind of crowding out effect to businesses and investment in the interior areas of the country. Without investment there is no employment opportunities in these areas and families have no incentive in moving to this places, increasingly isolated and least developed.

The tolls on certain roads may also contribute to discourage other European citizens, especially Spanish, to travel frequently to Portugal throughout these highways, and this can have a negative impact on the local commerce around the locations where the users have to pay.

Other problems are related to this fee introduction, for instance, there have been multiple complaints from the committees of users of these facilities due to the form of payment. In former SCUTS, as the chairman of the Estradas de Portugal said, the system of collecting tolls absorbs 29% of the amount charged to users and represents about 4% of the company’s costs. The cost of toll collection has more than doubled in 2012 compared to the previous year, from 17 to 42 million euros, in the first full year of revenue from the former SCUTS tolls. The form of collecting the tool is clearly not efficient.

SCUTS implicated a huge investment and its costs are high and with the introduction of these fees the revenues have increased; however if these fees are too elevated and the users demand for this good/service decreases to a certain point there is a high probability that this revenues increase does not compensate the costs.

It is important that they are financially sustainable, but, if they do not serve their purpose then they are not increasing the user’s welfare and, right now, they are just increasing revenues.

It is imperative to find the equilibrium where the revenue maximizing fee is also the same that maximizes users’ welfare, so that the reduction of the demand is not so accentuated.

Sara Simões, 643

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Author: studentnovasbe

Master student in Nova Sbe

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