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The future of driving: You pay for the roads you use, a kilometres and a kilogram at a time

May 13th, 2011 · 88 Comments

It costs $5-8 million to build one kilometre of road. Until recently, we drivers have taken that for granted. Not much longer. All kinds of people are busily looking at how to extract money from drivers in new and different ways, in a user-pay world of funding for roads and transit.

For BC Business, I got to explore this subject beyond B.C.

Sadly, no trips to experience congestion pricing in London or Stockholm, no flights to Singapore to drive through their roads where the price per kilometre changes with the rush-hour conditions. But I did get to go to the most experimental place in the U.S.: Oregon. Convinced that the fuel tax is a bad way to pay for roads or transit, since people are buying more fuel-efficient (but not less road-damaging) cars or electric vehicles, politicians there have been dabbling with the radical black-box monitoring system.

Now, I’m just waiting to see what TransLink and the province, who have been looking quietly at this whole issue behind the scenes, are going to do next.

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  • IanS

    @Chris Keam #45,

    IMO, a distinction without a difference.

    I was directing my comments more to user fees paid by those who are making use, or gaining the benefit, of a facility. If people using cars gain a disproportionate benefit from road infrastructure, I have no problem with some sort of user fee designed to reflect the cost of creating and maintaining that infrastructure. Whether you impose the fee for use of airspace or use of the actual airport, I don’t think it makes a difference.

  • Chris Keam

    Jason:

    I’d be reluctant to speak of specifics (although I would note that those making >$100,000 or thereabouts isn’t the ‘wealthy’ I’m referring to in this instance) but rather the hyper-rich for whom taking away more than half their income wouldn’t even really impact their standard of living in a material way. That’s also (near as I can tell) the point Singer makes in the NYTimes.

    The larger point for me is to ask whether tolls and usage fees solve one problem but create another, for those who feel the biggest impacts. I wonder if there aren’t structural issues to the way we currently pay for all our society’s costs that need greater analysis.

  • IanS

    @Chris Keam,

    While I’m not sure I’m totally agree with your concerns, I expect such a user fee system could fairly easily be made more progressive through tax rebates and the like.

  • pacpost

    @ Jason

    “Buffett is referring to the US where the loop holes in taxation allow the wealthy to pay less than their secretaries.”

    Actually, no. Buffett is referring to the fact that capital gains are taxed at much lower rates than income. The same holds true here in Canada, and most other countries. His argument has nothing to do with loop holes, and everything to do with how we set different tax rates on various types of “income.”

    Guys like Buffett (hedge fund managers, stock/futures/derivatives traders, etc.), who earn the vast majority of their income thanks to capital gains, are taxed at around 15-20%. Regular income is taxed at 40-45%. Buffett’s been talking about this discrepancy for the past decade.

  • Jason

    I don’t disagree that tolls and usage fees may solve one problem but create another (I pointed out the exact same thing in 33 above)…and yes, I think we could definitely look at different forms of payments, etc.

    That being said, I would be VERY careful in trying to draw comparisons between the United States and Canada when it comes to taxation, as there are stark differences between the two. While our taxation is not to the level of some European countries, it is definitely well beyond that of the United States….and our tax code is already progressive and taxes the wealthy to a much greater extent than the poor….and the vast majority of tax loopholes in Canada have been closed. So I think trying to squeeze the solution out of the top 1% in Canada is not going to get you very far….

    HOWEVER, where we would probably find some agreement is in looking at areas of Capital Gains and questioning whether someone who makes their living “moving money” should be taxed at a much lower level. Capital gains changes were brought in under the belief that this would encourage the “average joe” to invest for retirement….but what it did was give a massive tax break to those who make their living off of capital gains. An increase in capital gains tax (raising it to the same level of taxation on non-capital gains) on those that make in excess of $250,000 in profit a year from capital gains, seems to make sense to me.

  • Sean

    @Chris Keam #39
    “If transportation is to have user fees attached, why must it only be cars and bikes? Why not private aircraft being charged for airspace or boaters charged for the use of waterways? ”

    Can’t speak for boaters, but private and commercial aircraft alike are charged for NAV Canada services and in many cases are also charged a landing fee at airports.

    See: http://www.navcanada.ca/ContentDefinitionFiles/Services/ChargesAndAdmin/guidetocharges/Customer_Guide_New_en.pdf

  • Bill

    @Chris Keam #52

    “the hyper-rich for whom taking away more than half their income wouldn’t even really impact their standard of living in a material way.”

    It is naive to think that the hyper-rich would sit still and take higher income taxes rather than moving, the income at least, to lower tax jurisdictions and actually reduce tax revenues. It is the reason why lower tax rates may actually increase tax revenues.

  • Chris Keam

    Jason:

    Y0u noted that:

    “So I think trying to squeeze the solution out of the top 1% in Canada is not going to get you very far….”

    But Singer’s article takes that premise head on. He of course is dealing with American statistics but I think a useful comparison could be made for Canada and indeed many countries where wealth disparity is increasing. Here are his remarks from page 5 of the article:

    “Piketty and Saez’s top bracket comprises 0.01 percent of U.S. taxpayers. There are 14,400 of them, earning an average of $12,775,000, with total earnings of $184 billion. The minimum annual income in this group is more than $5 million, so it seems reasonable to suppose that they could, without much hardship, give away a third of their annual income, an average of $4.3 million each, for a total of around $61 billion. That would still leave each of them with an annual income of at least $3.3 million.”

    Scale it all down by a factor of ten for Canada (300 million people vs 30 million) and while obviously just ballpark figures, it’s not hard to imagine what $6 billion annually could do in terms of making transit ubiqitious and affordable in our country (for one example of how we could use the money).

  • ThinkOutsideABox

    Tax law recognizes the difference in private vehicle use between travel from home to work, and travel between places of work, i.e. traveling from one supplier to the next in the same day for the purposes of supervision and approvals (not everything can be emailed or “posted online”).

    Such expenses can be deducted from income taxes including mileage, gas, tolls and maintenance. In lieu of, often a vehicle is provided, or a vehicle allowance which is then deducted from corporate taxes by the employer.

    Were a user fee to be implemented, it’s reasonable to expect it could be written off as a cost of employment as well. In which case the fee would impact some more than others regardless of the amount of road use, i.e. a real estate agent can use the roads more often than the hockey mom because it’s a requirement of the job. But the hockey mom is paying more for the use of the roads though it’s possible she may be using it less.

  • Chris Keam

    @Sean

    Thanks for that addt’l information. A $68 annual fee for plane sure seems like a great deal for those who fly. I think it speaks to my contention that a sensibly pro-rated fee for active transportation users couldn’t recover the costs of administering the program.

  • Max

    @Chris Keam #52

    “the hyper-rich for whom taking away more than half their income wouldn’t even really impact their standard of living in a material way.”

    **********

    What right does anyone have to say that if you make xxx dollars, then you should be penalized in any which way?

    Jimmy Pattison is a billionaire and is self made. he worked for it.

    What right does anyone have to say because he has earned more money then he must pay a high rate of tax in order to support others.

    Let’s face it, there are many in this world that want everything and don’t want to work too hard to get it.

    If I am not successful in my own right, then I have noone to blame but myself.

  • Bobbie Bees

    Biil @ #48,
    I’m not forcasting $10.00 per litre through taxes. It’ll come about through oil company pricing. It was back in 1995 when I could fill my car up at less than 0.50 per litre. If I remember correctly, those prices held right up until about 2000.
    After 2001, the oil companies were able to use the specter of war in the middle east as the reasons behind the volatility that led to gas jumping up to well over $1.00 per litre almost overnight.
    You were all assured that gas would promptly head south of a dollar.
    Well, it’s 2011, gas prices are forecast to hit $1.75 by October.
    And thats $1.75 with the massive subsidies and tax breaks given to the oil industry all the while they rake in record profits. When their tax breaks and subsidies are removed, do you think the oil companies are going to absorb those hits?
    Hell no. They’ll just pass the costs right back to the consumer.
    And if the Deep Water Horizon incident succeeds in killing BP, there will be one less corporate entity controlling the oil supply.
    Car drivers have already proven that they’re willing to pay almost anything for a litre of gas, so $10.00 a litre isn’t to absurd.

    Actually, here is US dollars are some gas prices from around the world.
    http://money.cnn.com/pf/features/lists/global_gasprices/

    The sub dollar countries own and control their own oil.

  • Max

    3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation—25 Times More Than 1995 Estimate—

    http://www.usgs.gov/newsroom/article.asp?ID=1911

  • Chris Keam

    Max:

    Do you think Jimmy Pattison would have sold as many cars (actually his salespeople did that for him) if there were no publicly funded roads?

  • Everyman

    @Bobbie Bees 62
    Interesting chart. Assuming its current we’re already paying roughly the same or more than non-oil produicng countries like Germany. The difference being that Europeans have long driven smaller cars or used diesel engines more extensively. One could conclude Canadians could put off some of the pain at the pump you hope for by doing the same.

  • Max

    @ Chris Keam #64

    And your point is?

  • spartikus

    And your point is?

    Oh, probably something about how Jimmy Pattison benefited by the subsidies and investments government provided and made to make certain commercial products affordable. Such as the automobile. Perhaps if the taxpayer hadn’t subsidized road construction Jimmy Pattison might have made his fortune selling streetcars, but it’s impossible not to acknowledge the benefit he received.

  • spartikus

    Assuming its current

    It’s not. It’s from 2005. Canadians pay approximately half of what Germans pay. There was a chart floating around last week that I haven’t been able to locate again, but this is more recent.

    Of note, Norway pays some of the highest fuels prices in the world, despite being an oil exporter.

  • spartikus

    Also of note: Speculation explains more about oil prices than anything else:

    Some 70 percent of contracts for future oil delivery are now bought by financial speculators — largely big investment banks and hedge funds — who never take control of the oil. They just flip the contract for a quick profit.

    Wall St. strikes again.

  • spartikus

    Here is that chart based on April/May 2011 prices.

  • Max

    @spartikus #67

    Jim Pattison is much more than ‘cars’. Perhaps you should check out his local, national and international business investments/holdings.

    And we have benefited from Mr. Pattision and his 10’s of millions of dollars he has donated to cancer research, which include the tower at VGH; as well as other chartiable donations.

    He comes from the DTES, he worked hard for his money and for whatever reason people feel it their right to dictate how he should be taxed or penalized for doing well.

    The man in now in his 80’s and is still in the office at 4:30 am every day. Can’t say that about the vast majority of other people.

  • ThinkOutsideABox

    Time for another bailout!

  • ThinkOutsideABox

    http://yglesias.thinkprogress.org/2011/05/newt-gingrich-oil-subsidies-are-good-because-liberals-want-all-of-us-to-live-in-big-cities-i-high-rises-taking-mass-transit/

    Newt Gingrich: Oil Subsidies Are Good Because Liberals Want “All Of Us To Live In Big Cities In High Rises, Taking Mass Transit.”

    This whole problem of intellectuals who live on university campuses and take mass transit and then have no idea what the rest of the country is like.

  • Jason

    ““Piketty and Saez’s top bracket comprises 0.01 percent of U.S. taxpayers. There are 14,400 of them, earning an average of $12,775,000, with total earnings of $184 billion. The minimum annual income in this group is more than $5 million, so it seems reasonable to suppose that they could, without much hardship, give away a third of their annual income, an average of $4.3 million each, for a total of around $61 billion. That would still leave each of them with an annual income of at least $3.3 million.

    Scale it all down by a factor of ten for Canada (300 million people vs 30 million) and while obviously just ballpark figures, it’s not hard to imagine what $6 billion annually could do in terms of making transit ubiqitious and affordable in our country (for one example of how we could use the money).”

    I actually agree with Singer’s article when it comes to the US, and as previously stated, believe we need to adjust taxation to “capture” losses from Capital Gains here in Canada.

    HOWEVER, the premise above is flawed.

    If the top Canadian tax bracket is 44%, these individuals are already paying in excess of your 1/3 suggested amount….or are you honestly suggesting that they should pay 77% income tax?

    My point again, is simply that you’re comparing apples and oranges between Canada and the U.S.

    While I think we’re way off the debate topic as this point, something to consider would be that user fees could be applied to things like health care (a minimal charge that would help offset the cost of health care) that would greatly increase revenue (and help decrease costs).

    At the end of the day, I also don’t know that we necessarily have a revenue problem in Canada…it’s a matter of priorities. If our priorities are homelessness instead of Prisons….or transit instead of lowering our corporate tax rate beyond the lowest in the G8, we may find that we have all the revenue we need.

  • MB

    @ pw 18:

    “High oil prices are already changing our cities and the way we live. The focus should be on managing that transition, not bringing it about.”
    ———-

    That says it all in only two lines. Thanks!

  • MB

    @ Bill 30:

    “Actually, a portion of the gas tax is returned to the municipalities from the Federal Government through the Provincial Government. I don’t know how much Vancouver got but in 2009-2010 alone $250 million was allocated to British Columbia. Any proposed user fee at the municipal level should take into account this amount of gas tax that is flowing back to the city.”
    ———-

    Burnaby Mayor Derrick Corrigan said once that for every $1.00 the federal government takes from fuel taxes it returns 8 cents to cities. You can’t do much with that kind of largesse.

    Also, there is no provision in federal transfer payments to provinces that covenents premiers to spend it as the feds or anyone else suggest.

  • Bill

    @MB76

    See my point #48 – it is still tax being collected from gasoline. If it is misapplied, then that is a political decision and vehicle drivers should not be penalized by adding another tax.

  • MB

    @ Jason 33:

    “I’m in favor of Christy Clark’s suggestion that we put the carbon tax towards transit (I’d continue to increase that tax), and I think any fees added to driving should, for the most part, also go to improving transit. A superb transit system makes driving less necessary.”
    ———-

    Many of us have been saying this ever since the CT was introduced. But it’s nice to hear a standing premier finally suggest it.

    Also, your point about the link between affordable housing and transit is good. Not owning a car may not be a measure of income, but it is of disposable income.

    Also, the elimination of underground parking stalls associated with units in transit-dense areas makes that unit more affordable by at least $35,000.

  • MB

    @ Bill.

    I think we’re on the same page.

    I don’t have time to find the source, but I believe the total tax revenue from gasoline in Metro vancouver was stated once to be in the range of $600 million a year. That is exclusive of the oil company revenues from sales, which is much higher.

    If only 33% of that amount was devoted to public transit we’d have a much better transit system.

    The Transport 21 report contained a calculation that every driver (or maybe more accurately every car) in Lower Mainland was subsidized by $2,700/yr in round numbers. This works out to about $3.5 billion annually when multiplied by the 1.3+ million cars we run.

    That is one supersized subsidy.

    That figure accounts for replacement and and maintenance of road infrastructure, environmental remediation, healthcare costs associated with car accidents and particulate air pollution, litigation in the public legal system, etc. It does not accont for the cost of gridlock on our local economym, which runs another cool billion or so every year.

    Also consider that the publicly-funded road system covers about 1/3 of an average city’s entire land base, and that the value of that land is rarely accounted for in a city’s annual budget.

    There is something very screwed up about the economics of car dependency, and also about the fact that our society accepts this as a normal situation.

  • Bill

    @MB79

    I assume the report you are referring to is Transport 2021 from 1993 which had the objective to “encourage public transit and discourage single-occupant automobile travel throughout the region”.

    The total “subsidy” was $2.7 billion of which only $560 million related to actual road construction and maintance. The remainder consisted of land cost (as if we would not need any roads but for cars) – $600 million, pollution $515 million, accident costs $397 million and my favourite, urban sprawl $282 million. There are other categories but I think you get the picture.

  • MB

    @ Max 63:

    “3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation—25 Times More Than 1995 Estimate—”
    ———-

    At the average worldwide consumption rate of 85 million barrels a day, the higher estimated supply in the Dakotas will last 50 1/2 days if sold to the rest of the world.

    You can see the supply problem the world faces. We’ll need far more than a few Bakkens to make it up. Even the tar sands at their peak projected future output will average only 6 million barrels a day.

    To bring forth these ever diminshing supplies that take far more energy to get at than conventional oil, which is peaking in supply, doesn’t address the issue that price increases on the world’s No. One fuel will have serious ramifications on the world wide economy, which will inevitably filter down to us who live in car/fossil fuel-dominated cities.

  • MB

    @ Bill 80:

    “The total [car] “subsidy” was $2.7 billion …”
    ———

    Back in ’93 they had less than our current 1.3 million (900,000+). In effect, I rounded the per car subsidy (yes, it’s a public subsidy of private transportation) down , not up.

    I used 1 million cars with a 2.7 billion attributable cost.

  • MB

    @ Sparti 69:

    “Some 70 percent of contracts for future oil delivery are now bought by financial speculators — largely big investment banks and hedge funds — who never take control of the oil. They just flip the contract for a quick profit.

    Wall St. strikes again.”
    ———-

    Supply crunch + specultation = Bobby Bees was right.

  • spartikus

    You can see the supply problem the world faces. We’ll need far more than a few Bakkens to make it up. Even the tar sands at their peak projected future output will average only 6 million barrels a day.

    I’ve posted this here before, but here are the “key charts” from the IEA’s World Energy Outlook 2010. Please note the one on pg. 7. That’s the outlook under the rosy scenario.

  • Creek’er

    I am not opposed to congestion pricing in the central core, like London. The only difference is that we don’t have congestion and thus no need for it.

  • Creek’er

    “Why not private aircraft being charged for airspace”

    They are. Even cargo flights that don’t land in Canada pay a user fee to use Canadian airspace.

  • Creek’er

    @Jason #55:
    “Capital gains changes were brought in under the belief that this would encourage the “average joe” to invest for retirement….but what it did was give a massive tax break to those who make their living off of capital gains.”

    Actually, the only change to capital gains was when they were originally taxed (I believe by the Mulroney gov’t). Before that time, the courts and tax authorities considered a capital gain a ‘windfall’ and thus not subject to taxation (windfalls are still not subject to taxation e.g. lottery winnings).

    @Chris #60:
    “Thanks for that addt’l information. A $68 annual fee for plane sure seems like a great deal for those who fly.”

    It is. However, it is not for commercial operators who pay millions in NavCan fees to support a system that mostly benefits recreational and small aircraft (The large operators possess the technology to fly on their own without support from NavCan.).

  • Creek’er

    @Max #61:
    “What right does anyone have to say that if you make xxx dollars, then you should be penalized in any which way?”

    That is a rather strange argument. A progressive taxation system is part of *every* modern liberal democracy. This is so because it is just and equitable. Treating paupers and princes equally is inherently inequitable. Didn’t you read Aristotle? These aren’t exactly new ideas….

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