Disparate Groups Unite to Oppose Transit Pass Tax Credit

October 1, 2012

Can you identify a tax policy that is so ineffective, wasteful, inequitable, and cumbersome that political parties, think-tanks, and non-profit organizations across the political spectrum have spoken out against it?

This is a tax policy so universally maligned that opposition to it has brought the strangest of bedfellows to snuggle up and get cozy.

Let’s start with a list of the groups whose leaders or journals have decried the policy as an utter failure. Don’t peak yet… Can you guess the policy as you read the list?

In alphabetical order: Canadian Centre for Policy Alternatives, Canadian Taxpayers’ Federation, Canadian Union of Public Employees, Canadian Urban Transit Association, Catholic Women’s League of Canada (Manitoba provincial council), C.D. Howe Institute, Certified General Accountants’ Association of Canada, Citizens for Public Justice, Commissioner of the Environment and Sustainable Development, David Suzuki Foundation, Fraser Institute, Frontier Centre for Public Policy, Liberal Party of Canada, the Macdonald Laurier Institute.

And I’m only up to M… I’m sure there are many more.

The policy? Canada’s transit pass tax credit. The policy is an expensive and unproductive way to achieve its supposed goals of encouraging transit use to improve the environment and reduce traffic congestion. More than 1.5 million tax-filers claim the credit annually. Since its introduction in mid-2006, the credit has cost the federal government $725 million.

Because the credit is non-refundable, that’s $725 million that the 8.3 million lowest-income tax-filers were not eligible to receive, no matter how much they used transit. In fact, according to a report recently released by the Department of Finance evaluating the credit, the people most likely to claim the credit are those earning between $75,770 and $123,184.

That’s $725 million in tax credits that was subsidized by the people who use transportation that is more environmentally sustainable and better at easing traffic congestion -- such as walking, cycling, telecommuting, or staying home. This would perhaps be excusable if the tax policy worked. Unfortunately, it’s clear that it doesn’t.

The transit pass was introduced in mid-2006. The four previous years had an average annual national ridership increase of 2.6%. This includes 2003, when ridership fell as a result of SARS. The four years for which data are available since the pass was introduced had an average increase of 2.7% -- an insignificant rounding error difference.

Compare this to Stephen Harper’s foolish claim when the program was launched that the credit could increase public transit ridership by 25-50%. In 2007, the program was estimated to be responsible for an emissions reduction of 200,000 tonnes a year. By 2008, the government quietly lowered this estimate to 35,000 a year – 16% of the previous year’s estimate. This is worse than a back-of-napkin calculation. The original projected numbers were fanciful dreams.

The Commissioner of the Environment and Sustainable Development, in the report that criticized the program, said that its impact on greenhouse gas emissions would be negligible. Jeffrey Simpson of the Globe and Mail took it one step further, calling it “among the least effective policies imaginable.”

It’s clear that people use public transit for many reasons, none of which has to do with getting the tax credit. But many of those commuters – at least those who earn enough money – get the incentive, anyway. Paying moderate- to high-income people to do something they were going to do anyway can hardly be called a good policy.

Why not use the money this expensive program costs the government to fund transit in a way that benefits all riders, especially those with the lowest incomes? Why don’t we simplify the program so we don’t have to keep both outdated passes and receipts for years after they are of no use? Why don’t we use the money to subsidize the uncommitted transit users? Isn’t that the market with the most opportunity for transportation choice change? Or why don’t we use the money to actually improve transit systems?

Undoubtedly, the Fraser Institute and Canadian Taxpayers’ Federation would part ways with other groups on what to do with the savings, but there’s a dialogue to be had with them in the meantime on working together to get rid of a tax credit that makes no sense.

(Thomas Appleyard has a Master of Social Work from the University of Toronto and a Master of Business Administration from York University’s Schulich School of Business.)