There’s a cautionary tale for Finance Minister Chrystia Freeland in the drivers who keep getting stranded on the side of the road because they’ve run out of gas.
Their numbers are on the rise.
The Canadian Automobile Association says 838 southern Ontario drivers called them in April because they were out of gas, up 23 per cent from a year earlier. It’s a trend across the country, and indeed, across the continent.
We all know what those people were thinking. They were driving on fumes in the hopes that the gas price would fall before they needed to fill up again.
No such luck. Gas prices are the biggest driver of inflation, which surged again in May to 7.7 per cent. Gas prices alone are up 48 per cent on the year, and 12 per cent on the month.
At least those drivers’ inflation expectations are well anchored. If they weren’t, there would be a rush on gas today because we’d all be thinking it would be more expensive tomorrow — the dreaded self-fulfilling prophecy.
They were hoping to wait inflation out. That’s not totally unreasonable in the long term, given the volatility in energy prices over time and the resolve of central banks to stabilize prices again. But in the short term, those drivers found themselves stuck.
Freeland has been following the same path — hoping, perhaps beyond reason, that inflation will pass. It’s only now that she is contemplating new measures that could alleviate the harms of inflation.
She’s looking at pushing the private sector to increase productivity, she’s looking at supply chain disruptions, she’s looking at how best to support the most vulnerable. And yes, she is also looking at gas taxes and whether some kind of temporary relief would be better than nothing.
“As far as the gas tax question is concerned, it’s not to be ruled out. The question is, will it have an impact, will it have a meaningful impact, a direct impact in the way that some, including Conservative politicians, say that it will,” MP Peter Fragiskatos, parliamentary secretary to the Minister of National Revenue, told CBC’s Power and Politics on Wednesday.
After six months of dismissing the federal Conservatives’ relentless push for cuts to gas taxes, the Liberals have allowed it on the table as an option among others, to perhaps consider, one day.
The Conservatives say cutting the federal excise tax would save drivers 10 cents a litre for regular gas, and four cents a litre for diesel. Cutting the carbon tax would remove 11 cents a litre in provinces where the federal government imposes its federal fuel charge (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick). And subtracting the GST would take off eight cents a litre.
Their argument is that a temporary reprieve on gas tax would have an immediate effect on prices and would come at a time when the federal government can live without the tax revenue, since it is gushing in from the corporate sector right now.
The Liberals have resisted, arguing they don’t want to do anything that jeopardizes their ability to use taxes to force down greenhouse gas emissions, and besides, they can’t be sure the gas companies will pass along the savings to consumers. Plus, why put more money into the hands of consumers when the Bank of Canada is moving in exactly the opposite direction to control inflation?
But there’s a real-life experiment in Alberta right now, and it appears to be working. The province cut its 13-cents-a-litre tax in April.
Before then, gas prices in that province were rising hand-in-hand with the other provinces, Statistics Canada says. After it cut the tax, gas prices continued to rise but not by nearly as much. In May, gas in Alberta was up 31.2 per cent on the year. The national average was 48 per cent. In Ontario, gas was up 51.5 per cent.
Politicians of all stripes in Alberta and Ottawa alike are poring through research by University of Calgary economist Trevor Tombe. He found prices these days are 11.5 cents a litre lower in Alberta than the national average.
But Tombe doesn’t stop there. Alberta was able to drive down the price because it is a small market, he says in an interview. Canada is larger and the effect may be to actually increase demand, he says, which dilutes the downward pressure on prices.
More importantly, he points out that if Ottawa got rid of its excise tax on gas, it would miss out on $500 million a month. And it’s important for the federal government to decide whether drivers are the best recipients of that foregone revenue, or would it be better targeted on those who really need help with higher costs.
“Personally, I don’t think it’s advisable,” he said.
Tombe isn’t a retail politician though, and the pressure on Freeland mounts with every new release of the consumer price index showing an acceleration of inflation. And so, the gas tax idea is now in the mix, along with other proposals that may eventually see the light of day if inflation persists.
For now, though, plan A is to stick with existing policy and wait for inflation to go away — kind of like those motorists calling CAA from the side of the road. With economists projecting a peak many months from now, there’s only so long Freeland can chug along on policy fumes.
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