Transit and Tax Credits: A Lesson in Preparing Your Audience

Jonathan Kates 

Immediately following the release of Budget 2017, I found myself caught up in a whirlwind of opposing viewpoints thanks to the Liberal government’s discontinuation of the Public Transit Tax Credit (PTTC). Normally, I would welcome such discussion, but in this case, it quickly became apparent that members were sorting themselves into two groups. One side was relying on emotional arguments, while the other was relying on evidence. As tends to be the case when you’re a policy student, I gravitated towards the latter, even though not long ago I, too, filed my Metropasses along with my taxes.[1]

Group 1 – my family, friends and other intelligent folk on Facebook who usually leave thoughtful commentary on transit – lamented the government’s decision. Besides a bit of personal griping about their own future taxes, a lot of the commentary I saw questioned why the government would take away a tool for low-income riders to receive a tax benefit, especially given the correlation[2] between more frequent transit usage and lower income levels. The decision to eliminate this credit also seemed contradictory for a government that has committed to spending billions on building transit infrastructure.

Meanwhile, Group 2 – the #cdnecon crowd on Twitter – bombarded my timeline with retweeted links to papers that empirically support the government’s decision to scrap an ineffective policy.

It became clear that the key to understanding the deficiency of the PPTC is in its design. The PTTC is a non-refundable tax credit, introduced by the Harper government in 2006. According to an archived Department of Finance webpage, the credit was meant to “provide tax relief to Canadians who use public transit regularly and encourage individuals to […]help reduce traffic congestion, air pollution and greenhouse gas emissions[.]” These seem like noble-enough goals.

However, precisely because the credit was non-refundable (i.e. it cannot be used to reduce one’s taxes lower than $0), the one-third of Canadians who are already exempt from paying taxes due to their low level of income were ineligible from taking advantage of the credit. The PTTC is a prime example of the Harper government’s infamous “boutique tax credits”, which the Globe & Mail described in 2011 as “narrowly focused non-refundable tax credits aimed at the middle class in hopes of currying political favour for the Conservatives come election time.”

Canadian academics have used empirical data to prove that the PTTC was, in fact, a boutique tax that fell well short of delivering on its intended goals. Vincent Chandler of Saint Mary’s University in Halifax has written two papers [3] on the subject and found “no evidence that the credit has had [its] intended effect on ridership”; that the tax credit is “worthless” to low-income individuals; that it excludes those with no financial literacy who wouldn’t know how to claim it even if they are eligible; and that it adds administrative duties for Canadian Revenue Agency officials who must verify claims. In sum, Chandler concluded that the PTTC has cost the government more than its expected $207 million in forgone revenue, and has not produced any tangible evidence that it has achieved its intended outcomes.

This credit was a waste of administrative time and (forgone) government revenue with no practical benefits and, as such, the Liberals made a smart decision to get rid of it.

Nicholas Rivers and Bora Plumptre of the University of Ottawa analyzed the PTTC’s effect on both transit ridership and any environmental benefits that it has produced – which was the second stated goal of the credit. On transit ridership, their conclusion was identical to Chandler’s. They found an increase in ridership between 0.25 and 1 per cent between the years 2006 and 2011. With respect to the environment, they found the PTTC to be an overly expensive option for reducing congestion and improving the environment since the vast majority of claimants were already transit users prior to the introduction of the credit.

This credit was a waste of administrative time and (forgone) government revenue with no practical benefits and, as such, the Liberals made a smart decision to get rid of it. But if you don’t happen to follow any/all of Kevin Milligan, Lindsay Tedds, Nic Rivers or Joel Wood on Twitter, you would be unlikely to have known this.

Incredulously (and in Group 1’s defence), the government didn’t provide any advance warning that the PTTC was about to get axed. As such, they missed an opportunity to set up the narrative on an issue that they must have expected would receive public blow-back from constituents and the media. Even more stupefying is that the Liberals didn’t take this opportunity to scream as loud as they could about how Conservatives were using the PTTC to buy upper-middle-class votes under the guise of environmental benefits, and at the expense of low-income individuals.

Notwithstanding the fake secrecy of federal budget releases and our current concerns surrounding fake news, the benefits of pre-empting the public for controversial decisions by using facts also has significant practical merit, and should be considered due diligence. It’s unacceptable that Canadian economics professors felt that it was their duty to set the record via Twitter, and worse that they were doing it with freely available literature that the government could have used to their advantage.

If this government is going to make controversial policy decisions on matters as top-of-mind as transit and tax credits, they must do a much better job of explaining their rationale in the future.

Too often good policy and academic literature that is meant to keep the citizenry informed is guarded by paywalls and only accessible to those in the Ivory Tower of academia. This was the opposite case. Academics were sharing their research on social media because the government sprung this poorly-interpreted but smart policy decision on the public with no forewarning.

When Chandler wrote his paper a few years ago, he postulated that “the perceived political value of the tax credit may prevent its abolition despite evidence of its inefficiency.” Ultimately, it seems he was wrong, but he was certainly on to something. Just days after the budget, the Liberals’ popularity fell below the Conservatives’ for the first time since the 2015 election. If this government is going to make controversial policy decisions on matters as top-of-mind as transit and tax credits, they must do a much better job of explaining their rationale in the future. Otherwise, this may be what Canadians remember when they vote again in 2019.

[1] Full disclosure: At the end of every month when I was living at my parents’ house and commuting to campus, I gave my mom my TTC Metropass so she could save it for the end of the year to file with my taxes. Full disclosure, part 2: I haven’t the slightest idea if it ever contributed to my tax refund because I never took the time to learn how the tax refund system works. Based on the reactions of the first group I described, I’m not certain they did either, and that’s part of the reason I wanted to write this article.

[2] Data from a 2010 Statistics Canada release, “Use of public transit by selected household characteristics, 2007” shows that of those who used public, the percentage of those who only used it for work rose steadily alongside income (except for what seems like an outlier or statistical error in the $80,000-100,000 range). This seems to indicate there is at least some correlation between income level and “forced” frequency of transit use.

[3] One of them is downloadable for free here.

Jonathan Kates is a 2017 Master of Public Policy candidate at the University of Toronto’s School of Public Policy & Governance, and he holds a bilingual Bachelor’s degree in International Studies and Sociology from Glendon campus at York University.  His policy areas of interests are cities, social policy, innovative approaches to governance and service delivery, and how individuals are influenced by their environments. When not perusing the internet, Jonathan is probably checking his fantasy basketball team…ok, teams.