Biden on Wednesday called on Congress to suspend federal gasoline and diesel taxes for three months. Meanwhile, the United Kingdom, Italy and Germany (lower taxes), France (consumer discount) and Japan (wholesale subsidy) have all taken similar measures. As inflation – driven by rising gasoline prices – reaches levels not seen since Billie Jean topped the Billboard charts and Return of the Jedi hit theaters, will Canada follow suit? It should? So the answer from Ottawa is: not right now. Natural Resources Secretary Jonathan Wilkinson said earlier this week that the federal government has no immediate plans to cut pump prices with a temporary suspension from the federal gas tax. Canada is seeking to stabilize world oil prices by increasing supply, something Wilkinson said is starting to happen. He also said that aid to Canadian families, meanwhile, is focused on areas highlighted by Finance Minister Chrystia Freeland in a speech last week: increases in federal benefit checks, cuts in childcare costs and upcoming increases in Home and Security Canadian Workers Benefit. The Conservatives have been urging the Liberals for months to cut gas taxes, including removing GST from gasoline, temporarily suspending coal prices or lifting 10 cents per liter of federal excise duty.
It is not the solution, experts say
Rory Johnston, founder of the Commodity Context oil market data service, says any kind of gas tax break 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 is the wrong tool for the job. The main reason for the high gas prices is the severe lack of supply, he said. Artificially reducing the price of the pump will not help. High prices are observed at petrol pumps in Yellowknife. Gas prices have pushed inflation to levels not seen since the early 1980s. (Jared Monkman / CBC) “Prices will rise until you kill demand so that the market can balance,” he said. “We’re just running out of stocks right now, left and right. So by creating a gas tax break, you’re essentially subsidizing further consumption at even lower prices.” Johnston says he’s not sure why the Liberals did not move faster to cut pump prices, but he assumed the government was worried about the narrative around the transition to cleaner energy. “Since I am generally against moving [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 the tax break is not the right policy, given how tight oil is on the supply side.
Ottawa urged to take steps to increase gas prices
Opposition parties have stated they will not run in the by-elections. The Conservatives want a GST break and the NDP is asking for discounts for low-income families. “When that happens, market producers have more power,” he said. And that means a tax cut is more likely to increase producers’ profits than lower consumer prices.
Unpacked solutions
Johnston says he understands the pressure on governments around the world to do something. “This is a moment, I think, that requires creative, a posteriori policy-making – things we have not necessarily experienced before.” He offered three ideas: Milligan, for his part, says the federal government has a number of areas under its control in which it can and should focus on reducing inflation – alleviating airport bottlenecks, improving supply chains and reducing import duties – 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 are generally trying to focus on the wider middle class in times of crisis. “The problem is trying to find something that is not inflationary in itself that can help the wider middle class,” he said. “There comes a big challenge.”
