Reduce fuel taxes without silver bullet inflation



It would seem quite logical: cut fuel taxes on gasoline and diesel as a way to curb runaway inflation. It’s something that many in the Conservative Party of Canada and others are calling for as a way to stamp out inflation.

However, it is not that simple, at least not in current economic conditions.

There is no doubt that the removal of all fuel taxes would have a significant impact on inflation. In Manitoba, the province charges 14 cents a liter for gasoline and diesel. The federal government charges a special tax of 10 cents/L on gasoline and four cents/L on diesel. Then Ottawa levies the GST on top of that – the dreaded “duty tax”.

In addition, the provinces or the federal government levy a carbon tax at the pump. In Manitoba, the federal carbon tax is 11 cents/L. Some cities, including Montreal and Vancouver, levy their own fuel taxes.




<p data-recalc-dims=GRAHAM HUGHES / THE CANADIAN PRESS ARCHIVES

In Manitoba, the fuel tax is expected to generate $359 million in revenue this year. If the province suspended the tax for six months, it would lose about $180 million.

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GRAHAM HUGHES / THE CANADIAN PRESS ARCHIVES

In Manitoba, the fuel tax is projected to generate $359 million in revenue this year. If the province suspended the tax for six months, it would lose about $180 million.

In total, Manitoba governments siphon off 35 cents/L in taxes from motorists’ pockets and then apply five percent GST. If all those taxes were removed overnight, gasoline prices at Manitoba gas stations would drop from about $2.08/L to $1.63/L, a drop of 22 percent. Estimated savings: $23 on a 50-liter tank of gas, a good chunk of change.

Lowering gas prices would not only save individuals and families money, but also help small businesses and nonprofits make ends meet. It would also reduce the cost of transporting goods, mitigating price increases at grocery stores and other retail outlets. Fuel prices tend to have a cascading effect throughout the economy.

The problem is that cutting fuel taxes would also deprive governments of much-needed revenue. In some cases, governments would have to borrow money to cut taxes (something that proponents of tax cuts conveniently ignore when governments run deficits).

In Manitoba, the fuel tax is projected to generate $359 million in revenue this year. If the province suspended the tax for six months, it would lose about $180 million.




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With gas station prices skyrocketing to over $2/L, there is no need for a carbon tax.

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ETHAN CAIRNS / WINNIPEG FREE PRESS ARCHIVES

With gas station prices skyrocketing to over $2/L, there is no need for a carbon tax.

Since the government is in deficit, finance officials would have to borrow that money (unless they could find $180 million in spending cuts). Such a move would increase Manitoba’s projected deficit to $728 million, up from the current estimate of $548 million, an amount that would add to the province’s record $30.5 billion debt.

Future generations would have to pay that money back, with interest. Higher deficits also contribute to inflation, as governments sell bonds in the market.

The same would apply if the federal excise tax on fuel were suspended. It would have to be financed through loans because Ottawa also has a deficit.

The removal of the federal carbon tax is a different story.

It would be revenue neutral; could be offset by canceling the discounts for Canadians. The government would not have to go into more debt to cancel the carbon tax.

With gas station prices skyrocketing to over $2/L, there is no need for a carbon tax.

The stated goal of putting a price on carbon is to raise prices enough to discourage the use of fossil fuels. The market is more than dealing with that at the moment. An artificial price signal is not required. Gasoline prices have risen far beyond the federal government’s plan to add a carbon tax of $170 per tonne by 2030 (about 37 cents/L). There is little chance that gasoline prices will return to pre-2021 levels.

Removing the federal carbon tax in Manitoba would reduce prices at the pump by 11 cents/L. It would reduce inflation to some extent, but the impact would be minimal.

Removing the federal carbon tax in Manitoba would reduce prices at the pump by 11 cents/L. It would reduce inflation to some extent, but the impact would be minimal.

There is no silver bullet to solve Canada’s or the world’s inflation problems, despite the rhetoric of some politicians and interest groups, there are easy solutions, if governments accept them.

One cannot simply “stop printing money” or buy Bitcoin to solve inflation, as the candidate for leader of the federal Conservative Party, Pierre Poilievre, has proposed. Canada also cannot tax its way out of inflation by raising corporate taxes, as others have suggested.

Inflation is a complex economic problem that will only be solved over time through multiple measures and developments, including higher interest rates and improvements in global supply chains. Reducing fuel taxes would have a small impact on inflation in some regions of the country, but it would not be a panacea.

tom.brodbeck@freepress.mb.ca

tom brodbeck

tom brodbeck
Columnist

Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.

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