Last week the Mayors’ Council, representing 23 local governments in Metro Vancouver, released their long term vision for the region’s transportation system. On many aspects of transportation planning the Mayors’ proposed blueprint moved the region closer to a comprehensive vision that could, conceivably, pass the muster of a regional referendum. To their collective credit, the Mayors for the most part resisted the temptation to play politics with the priorities - the investment side of the plan displays a degree of reasonableness that has often been lacking in transportation debates in the region.
Unfortunately however the plan, while outlining a generally solid transportation investment framework, went off the rails in looking at one critical element of potential funding for the plan. After proposing a series of reasonable and even innovative funding sources – senior government contributions, increased ridership revenue, a toll on the Patullo and a commitment to bring forward mobility pricing – the plan veered into a ditch of the Mayors’ own making in calling for a fundamental reallocation of the province’s carbon tax.
The Mayors overlook the basic fiscal realities surrounding the carbon tax. First, the province is not in a position to give up hundreds of millions of dollars of revenue by transferring monies raised from the carbon tax to Metro Vancouver. Second, the revenue-neutral design of the province’s carbon tax regime – all of the revenues derived from the carbon tax are used to finance offsetting tax cuts and other fiscal incentive programs – means that if Victoria did choose to give up a portion of the current carbon tax revenue, the government would be compelled to reduce or eliminate other tax benefits paid for with the funds generated by the carbon tax.
Whether the Mayors meant to or not, eliminating the revenue neutral design of BC’s carbon tax would result in a series of significant tax increases affecting Metro Vancouver (and other BC) residents and businesses. To break this down briefly, the Mayors’ vision of reallocating the carbon tax would likely result in the following knock-on tax effects:
- Eliminating the province’s low income Climate Action Tax Credit (a roughly $300/year hit for a low income family of four)
- 5% increase to the first two personal income tax brackets in BC (recall that these personal income tax rates were reduced when the carbon tax was introduced)
- Eliminating the Children’s Fitness and Arts Credits
- Increasing Corporate Income Taxes a full percentage to 12%
- Increasing the Small Business Tax rate 80% from 2.5% to 4.5%
- Eliminating the Interactive Digital Media Tax Credit; the Film Incentive BC Tax and the Production Services Tax Credit.
- Plus a number of smaller programs including individual and corporate training tax credits
In total, I estimate that this would be an immediate tax increase of $250 million dollars, disproportionately impacting low income residents, families and arguably having a negative overall impact on the Metro Vancouver economy. One doesn’t need to conduct a rigorous policy review or opinion poll to quickly determine that this part of the Mayors’ plan is going nowhere.
So why, after putting together a largely cogent plan, would the Mayors’ table a funding source for a critical piece of the plan that is never going to pass a basic test of policy and political reasonableness?
Whether it was a desire among the Mayors’ to re-debate the revenue neutral structure of the carbon tax or a purposeful move to cast a forthcoming option as more palatable, the net result has been an unnecessary distraction to advancing the objective of moving a regional transportation plan forward.
The perception, rightly or wrongly, is one of yet another tossing of the proverbial hot potato between Metro Vancouver Mayors and Victoria on the sensitive topic of finding additional revenues to make the plan work through new tax/fee structures.
The sooner the Mayors drop the idea of a carbon tax reallocation (or increase) and move on to the required public dialogue on other possible funding measures, the sooner they will be able to advance a plan that, on many levels, deserves to move ahead to the next stages of public review.
While many in the business community would like to see more from the plan in terms of goods movement, the overall commitment to have Translink continue to work on goods movement priorities with senior levels of government is also an important next step. Getting the economic foundation of transportation right will be critical to building the communities and businesses that will sustain the expected 1 million new residents and additional 600,000 jobs over the life of the Mayors’ plan.
Finally, if the Mayors really want to get serious about sending a positive signal to taxpayers, they should also take a closer look at their own municipal and regional budgets. A commitment to raise a portion of the new revenues needed through efficiencies and (well thought out) tax reallocations at the municipal/regional level – instead of asking the province to give up some of its own revenue sources – would be welcomed by Metro Vancouver residents and businesses grappling with rising costs and affordability challenges.
 This design was deliberately conceived as foundational to ‘tax shifting’ and is entrenched in legislation.