Lowering Gas Tax

The continuing war has led to the new majority government of Mark Carney to lower the excise tax on gas 10 cents. For diesel and aviation fuel the drop is 4 cents In the next days and week, summer fuel comes on the market and it costs an additional fivc cents a litre.  And there is no telling how long the war continues. Even if oil begins to flow, resumption of pre-war prices is forecast not to happen this year and maybe never.

There is a lot of cynicism. Some are saying that the money should be used for other things to make life affordable. It is about $2.5 billion that is out of government coffers. The suggestion is that the money could be used to pay for 10,000 nurse for an entire year. If only that would end the nurse shortages. As with most things, it is very complicated.

With gas 40 cents higher than a year ago, some people asked to comment on media were begging government to somehow get it lowered back to that. Covid, global recessions and market manipulations have dropped gas prices way low from time to time. But what have we learned? Not much. It is when people buy the biggest vehicles. However, they can run into sticker shock if gas goes high which happens fairly often. Unlike the housing market, there are no guardrails against gas shooting through the roof. 

The war in the Middle East is outside Canada's control. What Canada can control is access to some critical supplies like helium where 30% is supplied by Qatar. Even before this there has been a shortage of this element that is central in things like MRI machines. Perhaps the private sector will take up the cause and invest here. There is a role for government in this.

As for reserves that other countries have such as the U.S., Canada has never needed since we are a net exporter. The price though is set worldwide. It doesn't matter if we have enough supply for ourselves. And we are not Venezuela or Saudi Arabia that subsidize fuel prices for locals. And where countries have subsidized, it hasn't helped their economies.

Reducing tax as a inflation relief strategy has to be measured against how much government revenue is lost versus how much costs of living. And once you reduce tax, the very act of doing show can in itself cause inflation. It is a balancing act. Most industries will all beg for tax relief while as the same time say the roads are terrible. Well, government revenue is required for infrastructure. 

The war has been a shock to the system so a temporary measure to help is understandable. The excise tax of 10 cents has been frozen since 1995. Adjusted for inflation, it should be 17 cents now. An argument for tax reform can be made, especially transparency and fairness. But some people, often richer, think taxes are only for the poor. No one likes taxes but they are a dense collection of fees that are confusing even to accountants.

The ceasefires in the Middle East usually have the same result every time. Civilians rush back to the smashed homes and re-build as do belligerents for the next wave of attacks. The incentive to actually resolve the problems is never really there. It seems for some, the war is a chance to shore up political support every few months. In some places like Lebanon, the state seems paralyzed to do anything as a nation.

For many Canadians, they will take the relief for now. They will wait till Monday to fill their cars. Some provinces might follow suit. Canada does not control the war. It might be involved somehow in a peace agreement but we seem far off from that scenario yet. The now majority government of Mark Carney will have to move fast to juice the economy and bring affordability to the market. If the world will stop fighting.