If we all drive electric, governments will lose

To listen to them talk, our federal and Ontario governments can’t wait for the planet-saving electric car future to get here. They are subsidizing electric cars and building a network of charging stations.

What we don’t hear about is the huge effect on federal and provincial revenues if the government’s rhetoric becomes reality and people turn to electric cars in large numbers. A big reduction in gas tax would seriously affect Canada’s ability to pay for roads, but it also would undermine a top source of transit dollars.

Federal and provincial governments will collect $23.5 billion in gasoline and diesel taxes this year, according to the Canadian Taxpayers’ Federation. In addition, they will take in nearly $1.8 billion in sales taxes.

Then, there are the new carbon taxes. In an all-electric future, this whole pyramid of tax will collapse. Even a significant advance for electric cars will erode government tax revenues.

That will have the effect of undermining governments’ transit plans. In Ottawa, for example, the LRT project is paid for primarily with federal gas tax money. Provincial gas tax dollars also are going into the project.

For municipalities, the gas tax is an important source of scarce infrastructure money. The federal gas tax fund provides them with more than $2 billion a year. In Ontario, the province distributes $334 million of its gas-tax revenues, an amount that will increase to $642 million by 20212022. It is meant as a stable source of funding for transit.

Both the Ontario and federal governments keep the lion’s share of gas tax revenue for themselves. In Ontario, the gasoline tax is expected to generate nearly $2.7 billion this year. All but the municipalities’ share goes into general revenue. The federal government collects $5.5 billion in fuel taxes, netting $3.5 billion after municipalities get their slice.

Despite the popular condemnation of so-called gas guzzlers, when it comes to automobiles, governments are tax guzzlers. Taking in less in taxes won’t be an option, but replacing the lost billions won’t be easy.

Cash-hungry governments elsewhere already are working on the problem. So far, 17 American states charge electric vehicle fees ranging as high as $300 a year. Even in electric-friendly California, a $100 fee is being imposed on all zero-emission vehicles. Seven states have eliminated subsidies for electric vehicles. A federal tax credit of $7,500 is set to expire in a few years.

Another potential solution is a mileage fee for driving a car. Selfdriving cars are the first point of attack. Tennessee has approved a permile fee for driverless vehicles and Massachusetts has introduced similar legislation. In Britain, gasoline taxes already have started to decline and there is consideration of a broader per-kilometre charge. Vermont and Oregon are looking at the same solution.

It’s not difficult to see the spin challenge governments will face. They will have to switch the perception of driving an electric car from a virtue to be rewarded to an everyday activity to be taxed.

It’s tough to tell people that you don’t want them to use gasoline, then impose a fee for not using gasoline. But, the per-car fees for electrics are trivial and something far more substantial will have to be done if the billions in lost gas tax are to be replaced.

The idea of government charging for every kilometre you drive seems politically unsaleable. Road tolls are an option, but if tolls are charged, people would reasonably expect the money to go toward roads, not transit or the general provincial pot.

We still are in the electric car honeymoon period, but unpleasant decisions lie ahead.