Should Canada join other countries and take a gas tax holiday?

If US President Joe Biden succeeds in trying to stop gas taxes in the United States, Canada will be the only G7 country that will not introduce tax cuts or subsidies to help tackle pump prices.

Biden on Wednesday called on Congress to suspend federal taxes on gasoline and diesel for three months. Meanwhile, the United Kingdom, Italy and Germany (lower taxes), France (consumer discount) and Japan (wholesale subsidy) have taken similar action.

As inflation, driven by rising gasoline prices, reaches peaks unseen since Billy Jean topped the Billboard charts and “The Return of the Jedi” hit theaters, will Canada follow suit? Should?

So the answer from Ottawa is far away: not right now. Natural Resources Secretary Jonathan Wilkinson said earlier this week that the federal government has no immediate plans to reduce pump prices by temporarily postponing the federal gas tax.

Instead, Canada is seeking to stabilize global oil prices by increasing supply, something Wilkinson said is starting to happen. He also said aid for Canadian families, meanwhile, has focused on areas highlighted by Treasury Secretary Christie Freeland in a speech last week: increased checks for federal benefits, cuts in childcare costs and forthcoming increases in old-age and Canadian security. Workers Benefit.

The Conservatives have called for the Liberals to cut gas taxes for months, including raising the GST from petrol, suspending the price of carbon or raising the federal excise tax by 10 cents a liter.

Not the solution, experts say

Rory Johnston, founder of the Commodity Context oil market data service, says any kind of gas tax holiday seems to help the poorest in society, who are most affected by gas prices as a percentage of their income. However, he told CBC News that this approach was the wrong tool for ongoing work.

The main reason for high gas prices is an acute shortage of supplies, he said; artificially reducing the cost of the pump will not help.

High prices are observed at the gas stations in Yellowknife. Gas prices have brought inflation to levels not seen since the early 1980s. (Jared Monkman / CBC)

“Prices will rise until you kill demand so the market can balance,” he said. “We are just draining the stock right now, left and right. So by creating a gas tax holiday, you are essentially subsidizing further consumption at even lower prices. ”

Johnston says he is unsure why the Liberals have not taken faster action to reduce pump prices, but speculates that the government is worried about the story of the transition to cleaner energy. “Because I am generally against this move [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 sensible policy, given how limited oil is on the supply side.

Ottawa has called for action against rising gas prices

Opposition parties are among those urging the federal government to take action against rising gas prices. Conservatives want an end to the GST, and the NDP is calling for discounts for low-income families.

“When that is the case, market producers have more power,” he said; and this means that tax cuts are more likely to increase producers’ profits than to reduce consumer prices.

Ready-made solutions

Johnston says he understands the pressure on governments around the world to do something.

“I think this is a time that requires creative, non-standard policy-making – things we haven’t necessarily tried before.

He suggested three ideas:

1. Rethink the gas tax. Create a sliding escalator tax that falls when gas prices rise, but rises when prices fall, removing some of the volatility of gas prices.
2. Offer direct cash, but only at the lower end of the income spectrum. Sending money instead of cutting taxes would make life more affordable without artificially subsidizing the cost of a limited resource, he said. But both Johnston and Milligan have warned that simply writing checks for everyone to deal with gas costs risks exacerbating inflation.
3. Consider restarting some facilities, such as the Come by Chance, NL refinery, which was closed at the start of the pandemic and is now being converted to renewable diesel. “Restoring oil production will help reduce this bottleneck in refining and bring the price we pay back to the pump closer to the price of all global oil,” he said.

Milligan, meanwhile, says the federal government has a number of areas under its control that it can and should focus on to reduce inflation – easing airport bottlenecks, improving supply chains and reducing import tariffs. – which would directly reduce prices for Canadians in stores.

He also stressed that the Bank of Canada should be allowed to do its job to reduce inflation.

Milligan said the challenge is that governments usually try to focus on the broad middle class during a crisis.

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