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December 2000 Fraser Forum:
The Translink Levy:
Taxing Patience More than Congestion

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Miriam Bixby

Translink, the Greater Vancouver Regional District�s (GVRD�s) independent transportation provider, is aggressively pushing the adoption of a new vehicle levy to take effect in October 2001. The proposed tax ranges from $40 to $190 per vehicle per year depending on the vehicle�s weight and insurance category, and is expected to raise over $90 million in transportation revenue annually (Translink Report to Board of Directors October 27th, 2000). Translink plans to spend this revenue to improve roads and increase the use of public transportation, which, it claims, is necessary to reduce congestion and pollution from vehicles. Translink presupposes that reductions in the number of drivers is desirable and a reduction in the amount of pollution from vehicles is necessary. The proposed levy has infuriated drivers and local politicians who argue that vehicle owners already pay their share of transportation costs in the province through provincial and federal fuel taxes, parking fees, and licensing fees.

Ken Dobell, Translink�s CEO, argues that without the revenue from the levy, the current quality of the transit system in the GVRD will deteriorate. In fact, on November 9th, a Translink committee vote to delay approval of the levy forced Dobell to cancel 80,000 hours of previously existing public transit in the GVRD, a service that required an early-November approval of the Strategic Transportation Plan�s (STPs) budget, which includes the vehicle levy.

History of vehicle taxes in Canada

Provincial fuel taxes were first introduced in the 1920s. Initially, most of the revenue collected from these taxes was spent on improvements to roads. British Columbia began charging provincial fuel taxes in the early 1950s: the initial tax of three cents per gallon was dedicated exclusively to provincial road expenditures (CAA 1998, pp. 2-3). In 1971, as provincial fuel taxes were rising, the Canadian government introduced federal fuel taxes, which, in 1975, consisted of an excise tax of 1.5 cents per litre. Today, consumers pay a federal excise tax of 10 cents per litre in addition to the GST rate of 7 percent. British Columbia�s provincial fuel taxes increased from 3.7 cents per litre in 1980 to 9 cents per litre in 1990 to 15 cents per litre today (Canadian Taxpayers Federation 1999, App. I).

Road revenues versus expenditures

A ratio of road-related revenues to road-related expenditures close to one, given an effective and efficient use of these funds, would indicate a responsible and accountable transportation bureaucracy. However, increasing fuel taxes accompanied by stagnant transportation spending created a growing disparity between the revenues collected by the federal and provincial governments, and their corresponding expenditures on road infrastructure and maintenance. Federal revenue from fuel taxes was $5.8 billion in 1998/1999, while transfers from the federal government to the provinces for road-related transportation spending was a mere $194 million, less than four percent of revenues collected from the provinces. British Columbia�s revenue from fuel taxes amounted to $1.2 billion in 1998/1999, whereas expenditure on road-related transportation was $778.6 million, only 65 percent of revenues (Canadian Taxpayers Federation, 2000).¹ The remaining 96 percent of federal and 35 percent of provincial transportation revenue collected becomes part of general revenue.

The gross disparity between the revenues that are collected from fuel taxes and the expenditures on road-related transportation should frustrate both those opposed to the Translink levy and those who argue for its approval. A viable alternative to the proposed levy would be a 2-cent diversion in both provincial and federal fuel taxes from general revenue. This would raise $92 million annually to provide for necessary upgraded roads and other transportation initiatives (Canadian Taxpayers Federation, 2000).

The levy: is it necessary?

Most of the controversy surrounding Translink�s Strategic Transportation Plan has focused on where the money will come from. However, there are more fundamental questions: Do the assumptions behind the Translink plan make sense? Are the objectives achievable or even desirable?

Congestion

Translink authorities assert that the vehicle levy will reduce congestion. This claim assumes that congestion is caused by an excess supply of drivers who are imposing a cost on society, that public transit is a viable substitute to private vehicles, and that drivers have a relatively elastic demand curve for cars (i.e., an increase in the cost of driving will result in a significant shift away from driving). If congestion is considered a cost to society, then the responsible individuals ought to be held accountable for compensating those bearing the burden of this cost. Kenneth Green from the Reason Foundation found, however, that in the unique case of vehicular congestion, those responsible and those affected were the same:

Since we are all subject to the very same uncertainties, and since we all know that any particular driving experience is but one round in an ongoing series of driver-upon-driver interactions, at any given time every auto user will be in both groups: those that slow traffic by their entrance into congested flow, and those who suffer the loss of time from someone else�s (or many someone elses�) ill-timed entrance. In an infinite series of such interactions, such user-on-user impositions should cancel one another out, distributing the cost of increased congestion equally among auto users. (Green, p. 18)

The cost of road congestion is being recovered implicitly by drivers. (However, this does not mean that the most efficient outcome has been achieved. A more optimal result may develop if a direct user fee were implemented in the form of a highway toll. The proposed levy will be ineffective in achieving this optimal level of congestion since taxing vehicle owners is indirect and ineffective, as is discussed in more detail below.) The real issue behind the congestion argument is that an appropriate number of drivers are receiving an inappropriate and ineffective number of upgraded miles of road. There is a disparity between road supply and demand. A report by The Canadian Automobile Association (CAA) asserts that congestion problems would greatly diminish if even a small percentage of revenue from fuel taxes collected by the provincial and federal governments was re-invested into our road system (CAA, 1998).

Translink also incorrectly expects that by increasing the cost of private transportation through the tax, it will reduce the number of drivers and increase the number of people using public transit. However, several empirical studies in both Canada and the United States have concluded that increased investment in public transit does not necessarily increase ridership (see, for example, Randall O�Toole�s study from the Thoreau Institute at http://www.teleport.com/~rot/Automyth.html). Despite the significant recent investment in the public transit system in Canada, between 1986 and 1994 annual transit rides per capita in Canada fell from 110 to 82 (Transport Canada). If significant financial investment into public transit has not increased ridership and reduced vehicle use in the past, then perhaps Translink should revisit the key objectives of its proposed levy.

The Translink levy is designed to force the marginal vehicle user off the road. This assumes that a reduction in the number of drivers is viable and beneficial for society and, specifically, for GVRD residents. Yet, inarguably, the motor vehicle has exponentially increased the efficiency and effectiveness of individual transactions, particularly for families with young children and disabled and elderly individuals, a benefit often ignored since discussions on automobile use most often focus on the costs of using private vehicles. Canadians have chosen the private vehicle as their preferred mode of transportation and consume vehicle use as they do essential food or housing goods. A rough calculation using a standard vehicle elasticity reveals that the $120 average levy would result in a mere 5 percent of drivers shifting off the roads.² As a result, an increase in the cost of owning and driving a vehicle will negligibly shift the marginal driver off the road, an indication that the vehicle levy would be ineffective.

Pollution

Translink�s Strategic Transportation Plan outlines the organization�s initiatives for transportation in the GVRD over the next 5 years. One of its key objectives is a reduction in car and light truck emissions including greenhouse gases (GHGs) such as CO₂, and ground level ozone gases such as VOC and NOx. There is an implicit assumption in this objective that these emissions are posing increasing health and environmental dangers.

The Canadian Automobile Association (CAA) commissioned several scientific assessments by an independent consulting group, Energy and Environmental Analysis (EEA), in order to determine the impact of cars and light trucks on environmental and human health. EEA measured emissions of CO₂, VOC, and NOx. Their recent study of CO₂ emissions in Canada reports that, in every province, passenger vehicles account for less than 20 percent of total CO₂ emissions. In British Columbia, vehicle emissions will account for only 15.65 percent of total CO₂ emissions in 2000, down from 16.81 percent in 1980, despite a significant increase in vehicle usage (EEA 1995). Similarly, EEA�s study of VOC and NOx shows that since 1995, VOC and NOx emitted by autos and light trucks in Vancouver have decreased from 30 percent to 28.3 percent of total VOC and NOx emissions in the area, and are projected to reach 27.9 percent by 2005. This projection is particularly striking since between 1980 and 2005, total vehicle kilometres driven are expected to increase by 103 percent (EEA, 2000).

Translink�s STP falsely represents the impact of vehicle emissions, exaggerating the effects of NOx and VOC on human health and the effects of CO₂ on the environment, an impact that the vehicle levy is specifically designed to reduce.

Conclusion

In order to make a fiscally and socially responsible decision about the use of public funds, expected benefits of the proposed policy must outweigh any expected costs. Translink has proposed a levy to decrease congestion and pollution by increasing the use of public transit. But because increasing the cost to drivers will not significantly change the number of drivers on the road, the levy�s focus on decreasing the use of private vehicles is misplaced and should shift to upgrading inadequate roads, or even directly targeting the users with a road toll. Moreover, public transit has not proven to be an effective substitute. Thus, an upgraded transit system is unlikely to provide the expected benefits of reduced congestion through increased ridership. Finally, despite Translink�s claim, there is a decreasing trend in emissions dangers to environmental and human health, evidence that spending to reduce these impacts would be misplaced.

The costs of the proposed levy are these: an additional vehicle tax of $75, on average, when there already exists a great disparity between fuel tax revenues and transportation expenditures; an increase in the cost of owning and operating a private vehicle without a corresponding increase in services; and a tax that is disproportionately placing the burden of transportation as well as general expenditures onto private vehicle owners.

A critical examination of Translink�s STP and of the federal and provincial governments� transportation initiatives reveals a lack of fiscal accountability and a failure to incorporate relevant empirical evidence and sound judgement into an important policy decision.

Note

¹In 1999/2000, BC�s ratio of expenditures-to-revenues was 148 percent. However, this is atypical. In 1999/2000, BC Ministry of Transportation forgave the BC Ferry Corporation�s $1.08 billion debt, which was treated as transportation expenditure.

²For this calculation, a 1.14 elasticity of demand for vehicles was assumed using a $10,000 average cost per vehicle over a four-year period. Source: Michael Parkin, 1998, Microeconomics, 4th ed., Addison-Wesley, p. 97.

Sources

Canadian Automobile Association (1998). Automobiles in Canada: A Reality Check. Digital Document: www.caa.ca/CAAInternet/onlinelibrary/autosincanada/autosincanada.htm

Energy and Environmental Analysis (1995). A Report on Carbon Dioxide Emissions Trends from Automobiles and Light Trucks. [Commissioned by the Canadian Automobile Association]: Arlington, Virginia.

Energy and Environmental Analysis (2000). An Updated Look at VOC and NOx Emission Trends in Vancouver. [Commissioned by the Canadian Automobile Association]: Arlington, Virginia.

Kenneth Green (1995). Defending Automobility: A Critical Examination of the Environmental and Social Costs of Auto Use. Policy Study No.198. The Reason Foundation.

Canadian Taxpayers Federation (1999). Gas Tax Honesty Day: Gas Taxes: Use them or lose them. Digital Document: www.taxpayer.com/studies/federal/Gastaxreport2-a.htm.

Canadian Taxpayers Federation (2000). Canada�s Gas Taxes = Highway Robbery. Digital Document: http://www.taxpayer.com/Gastaxreport2000A.pdf

Translink (2000). Strategic Transportation Plan. Digital Document: www.translink.bc.ca/rto/gvrd.htm.

Transport Canada (1999). Transportation in Canada 1999: Annual Report. Digital Document: http://www.tc.gc.ca/pol/en/anre1999/tc9900ae.pdf.

Miriam Bixby (miriamb@fraserinstitute.ca) is a Research Economist at The Fraser Institute. She has an MA in Economics, with a specialization in the environment, from the University of Toronto.