Should Canada join other countries in taking a gas tax exemption?

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If US President Joe Biden is successful in his bid to pause gas taxes in the US, Canada will be the only G7 country not to introduce a tax cut or subsidy for help deal with prices at the pump.

Biden on Wednesday called on Congress to suspend federal taxes on gasoline and diesel for three months. Meanwhile, the UK, Italy and Germany (lower taxes), France (a consumer rebate) and Japan (a subsidy to wholesalers) have all taken similar steps.

As inflation, led by increases in gasoline prices, reaches levels not seen in BillieJean was getting over Billboard graphics and return of the jedi was in theaters, will Canada do the same? Should?

So far, Ottawa’s answer is: not at this time. Natural Resources Minister Jonathan Wilkinson said earlier this week that the federal government has no immediate plans to reduce prices at the pump with a temporary suspension of the federal gas tax.

Instead, Canada is seeking to stabilize world oil prices by increasing supply, something Wilkinson said is starting to happen. He also said help for Canadian families, meanwhile, focuses on areas that Finance Minister Chrystia Freeland highlighted in a speech last week: increases in federal benefit checks, cuts in child care costs, children and upcoming increases in Canada’s Old Age and Worker Security. Benefit.

The Conservatives have been calling on the Liberals for months to cut petrol taxes, including raising the GST on petrol, temporarily suspending the price of carbon or raising the federal excise duty from 10 cents a litre.

Also, Read   Consumer prices rise at fastest pace in two decades

SEE | The opposition pressures the Liberals to act on gas prices:

Ottawa Urged to Take Action in the Face of Rising Gas Prices

Opposition parties are among those urging the federal government to take action in the face of rising gasoline prices. The Conservatives want a GST break and the NDP are asking for refunds for low-income families.

Not the solution, experts say

Rory Johnston, founder of the oil market data service Commodity Context, says any kind of gas tax break would seem to help the poorest in society, who bear the brunt of gas prices as a percentage of their income. . However, he told CBC News, that approach is the wrong tool for the job at hand.

The main reason for high gasoline prices is an acute supply shortage, he said; artificially lowering the price at the pump will not help.

High prices are seen at the gas pumps in Yellowknife. Gasoline prices have pushed inflation to levels not seen since the early 1980s. (Jared Monkman/CBC)

“Prices are going to go up until they kill off demand so the market can balance itself,” he said. “We’re just running out of inventories right now, from left to right. So by creating an exemption for the gasoline tax, you’re essentially subsidizing higher consumption at even lower prices.”

Johnston says he’s not sure why the Liberals haven’t moved faster to cut prices at the pumps, but speculated the government is worried about the narrative around the transition to cleaner energy. “Since I am generally against the movement [toward a tax holiday]I’m not disappointed,” he said.

Professor Kevin Milligan of the Vancouver School of Economics at the University of British Columbia agrees that a tax break is not a sensible policy, given how tight oil is on the supply side.

“When that’s the case, market producers have more power,” he said; and that means that a tax cut is more likely to increase producer profits than it is to lower consumer prices.

SEE | Biden promises to cut the gas tax:

Biden announces plan to freeze gas taxes

US President Joe Biden reveals a plan to lower gasoline prices.

Ready-to-use solutions

Johnston says he understands the pressures governments around the world are under to do something.

“This is a moment, I think, that requires creative, out-of-the-box policymaking, things that we haven’t necessarily tried before.”

He offered three ideas:

  1. Rethink the gas tax. Create a sliding scale tax, which goes down when gas prices go up, but goes up when prices go down, removing some of the volatility in gas prices.
  2. Offer direct cash, but only at the lower end of the income spectrum. Send money instead of lowering taxes it would make life more affordable without artificially subsidizing the price of a scarce resource, he says. But both Johnston and Milligan warned that simply writing checks so everyone can afford gas risks making inflation worse.
  3. Consider restarting some installations, like the Come by Chance, NL refinery, which was closed early in the pandemic and is now being converted to renewable diesel. Bringing oil production back “will help reduce that refining bottleneck and bring the price we’re paying at the pump back closer to the overall global oil price,” she said.

Milligan, for his part, says the federal government has a number of areas under its purview that it can and should focus on to reduce inflation: easing bottlenecks at airports, improving supply chains and lowering tariffs on imports, which would directly reduce product prices. Canadians in stores.

He also stresses that the Bank of Canada must be allowed to do its job of bringing down inflation.

Milligan said the challenge is that governments often try to target the broad middle class in times of crisis.

“The problem is trying to find something that is not inflationary in itself and that can help the broad middle class,” he said. “That’s where a lot of the challenge comes in.”


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