Gas Taxes

The proposed gas tax increase will add about 4% to the price of gas. With a typical commuter vehicle requiring about 6 to 10 litres per 100km[1] this will add about $0.30 to the cost of a typical 30-km commute into downtown Toronto. The actual amount might be higher, for a longer commute in heavy traffic, or lower, with a hybrid car. The increased tax will have a small, although not trivial, impact. To the extent that most GO rail commuters can choose, at least in theory, between driving and taking the train, the $0.30 increase in gas tax is equivalent to $0.30 or about a 5% reduction in GO fares, and could generate a small increase in GO rail ridership.[2]

Gas taxes are much higher in some other jurisdictions. In Britain, regular gasoline (petrol) retails for about £1.40 per litre, equivalent to $2.20. Pre-tax costs are similar; the difference, about a dollar per litre compared with Ontario prices, is almost entirely extra taxes. Beginning in 1993, the U.K. Government pursued a policy of raising fuel taxes 3%, and then 5% per year in real terms. Although the “escalator” was formally abandoned in 2000, after protests from truckers, real increases have continued and prices have risen a further 17% in real terms.[3] While nobody likes taxes, the fuel tax is seen as an effective way of discouraging use of gas-guzzling cars, and encouraging the use of public transport.

Since, 1993, the population of Greater London has grown by 21%[4] and per capita incomes are now the highest in Europe,[5] yet car usage has declined by about 10%, from almost 26 billion to about 23 billion vehicle-kilometres per year.[6] While London still suffers traffic congestion, it has actually become less severe in recent years, despite continued population growth and prosperity. The three graphs below tell the story.

Figure 20: London’s “congestion charge” attracts the most media attention. But the £10 ($15) charge applies only to a 5-km-square area in the city centre – in Toronto, this would be from St Clair to the Gardiner, between Bathurst and the DVP. Traffic in Central London has fallen about 20% since it was introduced. But traffic has fallen about 10% even in outer London, which is not affected by the charge, and despite the London population growing about 10% in the same period. The “carrot” is improved public transit, but the “stick,” higher gasoline prices, seems to have been just as important.[7]

Figure 21: Total travel in London has increased about 25% since 1993, along with the population and prosperity. Public transport use has doubled, while private transport (mostly car) use has actually fallen. Regular increases in motor fuel taxes have been accompanied with improvements to public transport. Public transport fares have also been increased in real terms.[8]

Figure 22: Since 1991, the UK has had a policy of raising fuel taxes each year.[9]

The most expensive place in the world for gasoline is Norway, where the price is almost $3 per litre. The country is a rich oil-exporting nation, but has accepted that gasoline should be heavily taxed, for environmental reasons. Car ownership is high, but so is public transit use.

Before expending too much political capital raising the gas tax, however, consideration should be given to the alternative of mileage-based charging, as is now being tested in Oregon. A gas tax is simple to administer, but may become ineffective  if hybrid and electric-powered vehicles become widespread. A per-mile charge, using smartphone technology, can also be varied depending by location and time of day. For example, driving after 10 p.m., or on local roads in areas without good transit, might be free of charge, while charges would be highest on downtown streets and expressways during peak hours.


[2] The Metrolinx model apparently assumes a 2% per year real increase in auto operating costs, from $0.50 per km in 2007 to $0.65 in 2021, and $0.79 in 2031. This is stated in the BCAs, usually in Appendix A, with other input variables and assumptions.
[3] See analysis by the Institute for Fiscal Studies http://www.ifs.org.uk/publications/5503
[7] Source: Transport for London Group Planning.
[8] Source: London Travel Report, Transport for London 2012.