Inflation: Will a ‘Petrol Tax Exemption’ Help Canadians?

As fuel prices hit record highs and fuel inflation, there have been growing calls for governments to temporarily suspend or reduce gasoline taxes.

On Monday The President of the United States, Joe Biden, said is considering a “petrol tax exemption” and could make a decision as soon as this week. When asked about the idea during a press conference in TorontoFinance Minister and Deputy Prime Minister Chrystia Freeland promoted existing measures intended to make life more affordable for Canadians.

“Our price for pollution includes an element where we pay back Canadian families, and the amount paid back to Canadian families has increased this year,” Freeland told reporters Monday. “Having said that, we are not closing any doors and we are going to watch the affordability challenges facing Canadian families very, very carefully and stand ready to do more, if needed.”

Philippe Cyrenne, an economics professor at the University of Winnipeg, says the federal government could do more easily by instituting an exemption from the gasoline tax, which would save Canadians about 10 cents a liter.

“A 10 cent per liter reduction in gas tax would save Canadians money,” Cyrenne told CTVNews.ca “And since the retail sector of the gasoline and diesel markets is competitive, this suggests most, If not all, the reduction in the federal gas tax would go to consumers in the form of lower retail prices.”

Since 1995, the federal government has levied a special tax of 10 cents per liter on gasoline. The provinces also levy fuel taxes, that vary widely across the countryfrom 6.2 cents per liter in Yukon to 14 cents or more in Manitoba (14.0 cents), British Columbia (14.5), Ontario (14.7), Saskatchewan (15.0), Nova Scotia (15, 5) and Québec (19.2).

If you refuel in Vancouver, Victoria or Montreal, those cities charge additional taxes on gasoline. Federal and provincial sales taxes and carbon levies also apply. Natural Resources Canada has published a online chart that breaks it all down.

The Federal Conservatives have cAlled for a temporary tax exemption in the bombs. A handful of provincial governments have already taken action.

Alberta suspended its 13-cent gas tax in March and plans to evaluate the decision every quarter. Newfoundland and Labrador temporarily cut its gas tax by 7 cents to 7.5 cents per liter in early June. 1st of July, Ontario Provincial Gasoline Tax Rate it will drop to 9.0 cents per liter, down from 14.7 cents; a reduction of 5.7 cents that will remain in effect until December 31.

US states Maryland, Georgia, Connecticut, New York and Florida have taken similar steps. So have the UK, Italy and Germany. The economic fallout from the Russian invasion of Ukraine has pushed up gasoline prices around the world. If the Biden administration goes ahead and cuts federal gas taxes, Canada will be the only G7 nation that has not lowered gas taxes or offered a subsidy to offset recent pain at the pumps.

“Consumers are really hurt by higher gas prices,” US Treasury Secretary Janet Yellen said alongside Freeland at the news conference in Toronto on Monday. “I think that while it’s not perfect, it’s something that should be considered as a policy to address it.”

Scotiabank Chief Economist Jean-Francois Perrault agrees.

“You lower the price of gas, you lower inflation,” Perrault told CTV News Channel’s Power Play on Monday. “It’s a temporary shock, obviously… But certainly, if it’s helping Canadians deal with higher inflation, one way to do that is to cut gas taxes.”

That should focus on the federal carbon tax, said Cyrenne of the University of Winnipeg.

“I think it would be appropriate to suspend or even slow the proposed carbon tax increases until oil prices, and thus gas prices, moderate,” Cyrenne explained. “The higher prices are enough to reduce the quantity of fossil fuels demanded, which was the purpose of the carbon tax.”

Trevor Tombe, an economics professor at the University of Calgary, acknowledges that a gas tax exemption would save Canadians money and help fight inflation, but still advises against such a move.

“Gasoline prices provide an important signal to consumers to try to reduce demand for gasoline,” Tombe told CTVNews.ca. “It’s also a very expensive policy for the government in terms of lost revenue. The tax brings the federal government approximately $500 million a month.”

Tombe adds that it would also not help every family in need of support.

“Instead, the government can provide targeted help to low- and middle-income families who may be struggling with rising prices, regardless of how much they drive,” Tombe said.

Most of the US gas tax money goes to road infrastructure; in Canada it is general tax revenue. Although gas taxes are lower in the US than in Canada, both are already among the lowest in the developed world.

On Tuesday, Natural Resources Minister Jonathan Wilkinson said the federal government is more focused on lowering gasoline prices by other means.

“I think Minister Freeland was pretty clear in her speech earlier this week that we’re working on affordability,” Wilkinson told reporters in Ottawa. “But obviously we’re also working to stabilize world energy prices through the work we’re doing to increase production.”

With archives from The Canadian Press

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