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


If US President Joe Biden succeeds in his bid to suspend gasoline taxes in the United States, Canada will be the only G7 country not to provide a tax cut or subsidy to help deal with prices at the pump.

Biden on Wednesday called on Congress to suspend federal gasoline and diesel taxes 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 action.

As inflation – marked by rising gasoline prices – hits highs not seen since Billie John was at the head of Billboard graphics and Return of the Jedi was in theaters, will Canada follow? Should he?

So far from it, 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 reprieve from the federal gasoline tax.

Instead, Canada is seeking to stabilize world oil prices by increasing supply, which Wilkinson says is starting to happen. He also said assistance to Canadian families is, meanwhile, focused on areas that Finance Minister Chrystia Freeland highlighted in a speech last week: increases in federal benefit checks, cuts in child care and upcoming increases to Old Age Security and the Canada Worker Program. Benefit to.

Conservatives have been asking the Liberals for months to cut gas taxes, including scrapping the GST on gas, temporarily suspending the price of carbon, or scrapping the federal excise tax of 10 cents a litre.

Not the solution, experts say

Rory Johnston, founder of oil market data service Commodity Context, says any kind of gasoline tax exemption would appear to help the poorest in society, who are most affected by percentage gasoline prices. of their income. However, he told CBC News, this approach is not the right tool for the job at hand.

The main reason for high gas prices is a severe supply shortage, he said; artificially reducing the price at the pump will not help.

“Prices are going to rise until you remove demand so the market can clear out,” he said. “We’re just running out of inventory right now, left and right. So by creating a gas tax holiday, you’re essentially subsidizing additional consumption at even lower prices.”

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

Johnston says he’s not sure why the Liberals haven’t moved faster to lower prices at the pump, but speculated the government is concerned about the narrative of 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 holiday is not a wise policy, given the shortage of oil on the supply side.

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

Ready-to-use solutions

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

“It’s a moment, I think, that calls for creative, out-of-the-box policymaking – things we haven’t necessarily tried before.”

He came up with three ideas:

  1. Rethink the gas tax. Create a progressive tax, which decreases when gasoline prices rise, but increases when prices fall, removing some of the volatility in gasoline prices.
  2. Offer cash directly, but only at the lower end of the income spectrum. Send money instead of lowering taxes would make life more affordable without artificially subsidizing the price of a scarce resource, he says. But Johnston and Milligan warned that simply writing checks for everyone to meet gasoline costs risks worsening inflation.
  3. Consider rebooting some installations, like the Come by Chance refinery in Newfoundland, which was shut down at the start of the pandemic and is now being converted to renewable diesel. Bringing oil production back “will help reduce this refining bottleneck and bring the price we pay at the pump closer to the price of world oil,” he said.

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

He also insists on the fact that the Bank of Canada must be allowed to do its job of reducing inflation.

Milligan said the challenge is that governments typically try to focus on the broader middle class in times of crisis.

“The problem is trying to find something that isn’t inflationary per se and can help the whole middle class,” he said. “That’s where a lot of the challenge comes in.”

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