Following the 2006 election that brought us our first modern (post-Reform Alliance) Conservative government, Harper’s Tories enacted a series of federal tax credits. These tax credits were likely concessions to the other minority parties in Parliament, whose support the Tories needed to pass their budget. Since 2007, the federal transit pass credit allows individuals who buy monthly transit passes to claim their value as a deduction from their taxable income, reducing the amount they would otherwise owe in federal taxes. In return, the federal government has not increased cities’ share of the federal gas tax, and there is no federal direct funding for mass transit systems in Canada.
The federal transit pass credit is designed to make the cost of public transit more affordable for working individuals and families, without pressure to raise taxes. But with transit costs always rising and cash-strapped municipalities forced to hike fares because the federal government won’t chip in, has the tax credit really saved anyone real money?
A while back, I wrote an analysis of the federal tax credit on Toronto’s Metropass. The transit pass tax credit is a basic nonrefundable credit for the value of the passes, meaning a reduction in tax payable equal to the lowest tax bracket percentage. Since 2007, that means 15% of the cost of the monthly pass is paid for by the federal government. However, since the tax credit leads to more demand for transit, and the federal government has not increased their funding in the last 5 years, the costs of those passes are going up.
In 10 years since 1996, the monthly cost of a Metropass gradually rose from $78.00 to $99.75 just before the introduction of the tax credit in 2006, a steady increase of about 2.6% per year. In under four years since then, the cost has jumped by nearly the same dollar amount to $121.00, or nearly 6% per year since the Conservatives formed the federal government.
For an individual who can claim the tax credit, the net cost of taking transit for a year before the introduction of the credit in 2006 was $1,197.00. With tax savings in 2007, the cost dropped to $1,017.45. By 2010, the cost has risen again to $1,234.20, after claiming the tax credit. If the federal government had kept up with funding to keep the increases at a consistent 2.6% rate, we would be paying about $109 for a monthly pass now, or $1,308 per year. So the tax credit is giving those of us that can benefit a bit of extra cash in our pockets.
But who can benefit? It’s frankly those of us that could afford to pay more that are gaining from the federal tax credit. Mathematically, you must have earned more than $11,433 to gain any benefit at all from the transit pass credit in 2010 ($16,828 for seniors, $20,764 combined for couples). Also, you must have purchased monthly passes, which in Toronto is only economical if you make more than 32 trips in a month. With those restrictions, it becomes really only those people with decent-paying full-time jobs that benefit from the transit tax credit.
For everyone else, the refusal of the federal government to increase transit funding trickles down to them directly. The price of tickets rose at about the same rate as the Metropass from 1996-2006, then shot up to a little over 5% per year when the federal transit tax credit was introduced. Cash fares have risen even faster. For people who don’t ride transit often enough to make a monthly pass worth the money, there is no tax relief. For those who don’t earn enough income to benefit from the tax credit, the costs just keep going up, and these are the Canadians who are the least able to afford rising prices. Low-income residents, part-time employees, students, youth, seniors and the disabled are bearing the cost of the tax credits for the people who need them the least.
As nice as that bit of extra tax credit is for those of us that can afford it, it’s coming at a huge cost to the most disadvantaged people in our society. And let’s be honest, those of us who are taking advantage of the transit pass credit could easily afford to pay a few dollars more. Plus, with Toronto facing nearly one billion dollars in funding shortages in next year’s municipal budget, we’ll be saying goodbye to those savings real soon, unless the next federal government steps in with a proper urban transit funding strategy. I guarantee that’s not on Stephen Harper’s agenda.