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Benjamin Dachis is associate director of research at the C.D. Howe Institute

Ontario Premier Kathleen Wynne announced on Friday that she will not allow the City of Toronto to proceed with road tolls. I'll leave the politics of this decision to others, but the economic consequences of the decision will be more congestion and myriad problems for cities reliant on unsustainable provincial grants.

How did we get here? About a decade ago, the province granted the City of Toronto – and only Toronto – the power to levy tolls on roads it operates, among other new tax powers. There was a catch, however: The province retained the final say by having to pass a regulation allowing such a road toll. In December, Toronto City Council voted in favour of asking the province to allow Toronto to place tolls on the Gardiner and Don Valley expressways. But Ms. Wynne has put up a stop sign on tolls. The province will instead raise the grant to cities from the provincial fuel tax.

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The economic case for road tolls is powerful.

The first, and by far the most important, reason to toll a road is that a well-designed road toll is the best solution to Toronto's traffic woes. A toll that goes up as traffic increases would give drivers ready access to a free-flowing highway.

The economic costs of congestion are large – and growing. It is not just that people stuck in traffic are less productive. Long commutes can dissuade people from coming to cities where they would prosper and can discourage businesses from investing in those cities. Congestion makes us poorer.

Building new transit and roads will help provide more options for travellers across the region. However, new capacity can only do so much. As more options become available, more people start travelling. Before you know it, the new infrastructure will be at capacity and we'll be having the same discussion about congestion. The only long-term solution is to set a price on infrastructure that changes based on demand. That means tolling.

Second, drivers currently do not pay the full share of building roads. Road pricing could bring the price that drivers pay for infrastructure they use closer to the actual cost of it. Gas taxes (which are about 85 per cent of road-related revenues), vehicle licences and other revenues from drivers have covered less than 70 per cent of roadway expenses across Canada since 2008.

Fuel taxes will be an unsustainable revenue source. Vehicles are becoming more fuel-efficient, which has resulted in declining gasoline-tax revenues. If electric vehicles take off – something the province is heavily subsidizing – fuel-tax revenues will plummet. The existing gas tax also will not fight traffic congestion.

The proposed increase in Ontario's grant to cities from provincial fuel taxes does nothing to address the problem of taxpayers subsidizing drivers. Instead of drivers paying for the road they were going to use, everyone in the province will be paying for infrastructure that, for the most part, they don't use.

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Grants have other problems, too. Intergovernmental grants reduce transparency and accountability. Voters will not know which government is responsible for taxing and spending choices. Worse, grants may lead local governments, anxious to prove they need the money, to spend on low-value projects. Politicians at one level can blame those at another level for the taxes to cover new projects.

When Toronto City Council voted to approve a road toll, voters knew who was making the decisions on how to raise revenues and how to spend them. Or so they thought. With members of Toronto City Council already taking credit for Ms. Wynne's announcement of the gas-tax transfer, the lines of accountability are now blurry.

Road tolls are still the best answer to Toronto's traffic problems. For now, however, a shortsighted decision by a different government means congestion and a lack of accountability for taxing and spending will continue to slow down Toronto's economy. Toronto and the province as a whole can and should return to road tolls in the future.

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