Toronto Gas Tax

August 28, 2015

Implementing a regional gasoline tax in the Greater Toronto and Hamilton Area (GTHA) would help reduce traffic congestion, air pollution, and traffic accidents concludes a new study published in the latest issue of Canadian Public Policy, Canada’s foremost academic journal examining economic and social policy.

“A regional gasoline tax, similar to the one in Metro Vancouver, could shorten commutes, provide cleaner air, and prevent injuries, while raising revenue that could be used to reduce other taxes, fund public transit, or reduce the provincial debt” said Joel Wood, study author and Assistant Professor at Thompson Rivers University.

The study, Is It Time to Raise the Gas Tax? Optimal Gasoline Taxes for Ontario and Toronto, argues that gasoline taxes are levied for two important reasons: to raise revenue for government in a minimally intrusive way and to reduce the negative effects of driving (e.g., traffic congestion, air pollution, and accidents). Recently, there have been proposals to implement a 5 cent per litre gasoline tax in the GTHA to pay for public transit infrastructure, notably Metrolinx’s The Big Move plan. The study surveys estimates of how consumers respond to gasoline taxes, the costs of traffic congestion, the costs of air pollution, and many other parameters, and then uses these estimates in an economic model to calculate that a regional gasoline tax in the GTHA should be around 15 cents per litre (a total gasoline tax bill of 40.57 cents per litre).

“An additional 15 cent tax may seem high to Toronto drivers, but it is on par with the regional gasoline tax levied in Metro Vancouver. The existence of a similar tax in Metro Vancouver is suggestive that a regional tax of this value is a real possibility for the GTHA,” said Wood.
The study also notes that the Ontario gasoline tax has not changed since 1992 and the federal gasoline tax has not changed since 1995. The study also calculates a value for the Ontario-wide gasoline tax if a regional tax is not introduced and concludes that a five cent increase is justified.

“Gasoline taxes haven’t been raised since the early 1990s and have not increased with inflation; whereas, income tax paid increases as incomes adjust to inflation. Drivers in Ontario have paid gasoline taxes that were much higher in inflation adjusted terms in the past,” Wood said.

The study considers two possibilities of what could be done with the resulting revenue from higher gasoline taxes: Reducing income taxes or funding public transit. It is noted that the Metro Vancouver gasoline tax is earmarked to funding Translink, the regional transportation authority. The choice of what is done with the revenue does not affect the technical results of the study. However, the study notes that using the revenue to fund public transit could benefit lower income groups who may be negatively impacted by the tax.

“Funding transit may help build public support for the tax by mitigating possible regressive impacts. There also may be gains in public support if the earmarking is done in a transparent manner so taxpayers can see that the money is not going into general revenues,” said Wood.

The full article can be found at CPP Online and has been temporarily made open access and free to read.

 

Media Contact:

Joel Wood

Assistant Professor, School of Business and Economics, Thompson Rivers University

Telephone: (250)-371-5583

Email: jwood@tru.ca

Twitter: @JoelWWood

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