The answer to Toronto’s $2.5 billion transit question

TORONTO – A new study by the Canadian Centre for Policy Alternatives (CCPA-Ontario) lays out a compromise solution to political gridlock over how to pay for the region’s $2.5 billion in planned public transit expansion.

Toronto’s $2.5 Billion Question: GTA and Hamilton Public Transit Expansion Revenue Options, by economist Hugh Mackenzie, weighs the full range of tax options and finds a sweet spot among provincial and municipal taxes that would foot the bill. 

“No single tax option raises enough money to pay for the proposed expansion and address current and future operating cost issues,” says Mackenzie. “That means the region will have to rely on several different options to raise the needed revenue. The good news is there are plenty of options to reach a compromise.” 

The report settles on this mix of provincial and municipal revenue-generation options:

• Fuel taxes, which haven’t gone up since 1993 in Ontario and have been introduced as revenue options in Montreal and Vancouver.
• Sales or payroll taxes, for practical reasons. Despite the contention over sales taxes, there remains 2% fiscal room on the HST front due to cuts at the federal level. Payroll taxes would be a more progressive option.
• Parking charges or develop­ment charges. The region could levy these charges at different rates depending on location to encourage drivers to choose public transit.

Additional revenue to address operating cost needs could be raised by restoring a portion of the cut in corporate tax rates implemented since 2010. 

“Although the major regional revenue sources in this package are regressive,” Mackenzie says, “the regressive impact is mitigated by the use to which the revenue will be put. Public transit delivers greater bene­fits to lower- and middle-income households. 

“In fact, transit benefit is so strongly progressive that expanded transit funded from modestly regressive taxes is, overall, progressive.” 

The report rules out road tolls for their administrative complexity, uncer­tain distributive impact and limited revenue-raising potential. It rules out land transfer taxes and property taxes because they are already important local sources of revenue. It rules out vehicle registration charges because of their very regressive impact. And it rules out transit fares because the farebox revenue share in the GTHA is too high relative to world standards.

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The report can be downloaded at www.policyalternatives.ca/ontario. For more information, please contact: Trish Hennessy, director, CCPA-Ontario (416) 525-4927.