A man pumping gas into a car
Policy Analysis

Cutting Gas Taxes? There Are Better Ways to Address Affordability and Provide Direct Relief

Cuts have already been far outstripped by Canada's rising gas prices, and people most in need may not own a car. Lower taxes also help fuel companies.

By Laura Cameron on July 11, 2022

The following op-ed was originally published by The Toronto Star on July 11, 2022, and is reprinted below with permission.

Prices at the pumps are the talk of every town across Canada. A global shortage of crude oil, exacerbated by efforts to cut ties with Russian oil and gas, are sending costs sky high. These record gas prices—and the rising costs of everything else—are impacting people everywhere, many of whom are struggling to pay the bills.

Governments undoubtably need to address these affordability challenges. But to support those most impacted, cutting gas taxes fails on every count. There are much better options that offer direct relief to those who need it most, and at a lower cost.

Despite this, some governments are already opting to cut taxes on fuel. Alberta was first here, suspending their fuel tax starting in April, at an estimated cost of $600 million for the first three months. Ontario recently followed suit with a six-month cut to gas and fuel taxes, with an expected cost of $645 million. Newfoundland and Labrador also cut gas taxes until the end of 2022. These cuts, ranging from 5.7 to 13 cents per litre, have already been far outstripped by rising gas prices, which have climbed over 50 per cent in Canada in the past year.

Other countries such as Italy, Germany, Ireland, and the Netherlands have made similar moves, while U.S. President Joe Biden calls for the same.

Axing Gas Taxes Doesn't Cut It

Lowering taxes on gasoline saves money for vehicle drivers, but low-income people most in need of savings may not own a car. People with higher incomes typically own and use cars most, and stand to reap the highest financial benefits. If support was targeted to those who need it, such as through direct payments, recipients could choose to spend it on gasoline or other household needs like groceries, which have also soared in price. The Alberta fuel tax holiday is estimated to benefit families $70 to $200 per quarter on average, but that $600 million could alternatively cover three $200 payments to one million low-income households.

Lower gasoline taxes also end up benefitting fuel companies. Lower gas prices incentivize people to use more of it, thereby increasing producers’ earnings. Yet oil and gas companies are already making record profits, with revenues projected to reach $242 billion this year—up 58 per cent from last year. Even considering increased royalties, there are more effective ways to help struggling Canadians. Not to mention that some of these companies aren’t paying their own taxes, owing Alberta municipalities over $250 million.

Additionally, these taxes fund public services. Cuts to taxes mean cuts to spending elsewhere, like health care, education or child care. As emergency rooms across the country face staffing shortages and closures, we cannot afford additional cuts to vital social services that might result from revenue shortfalls.

Supporting Communities Without Tax Cuts

Governments should take alternative action to make sure Canadians receive relief from increased energy prices. One option is redistributing profits collected on fossil fuels to communities in need through cash transfers or expanded social assistance. The U.K. has done just that, with a new $6.3 billion windfall tax that collects 25 per cent of oil and gas companies’ profits to help fund a relief package distributing direct payments to millions of low-income households and pensioners. Italy also enacted a 25 per cent windfall tax, and Spain, Bulgaria, and Romania are pursuing similar policies.

Canadian governments could also take immediate steps to increase the accessibility of transportation alternatives. Making public transit cheap or free, as Germany did temporarily, would provide a more affordable option for many urban dwellers, and wouldn’t require vehicle ownership or use to see financial relief.

Ultimately, we need to insulate our energy systems from volatile oil and gas prices that will remain unstable in the long-term. This means acting now to ramp up cleaner transport options like electric vehicles and public transportation, and redirecting fossil fuel subsidies to renewable energy and energy efficiency.

The federal government and provinces such as Manitoba and Quebec have said they’re not currently considering gas tax cuts, but pressure to act on affordability remains. Let’s embrace more equitable, creative and economically sensible solutions to support Canadians through this difficult period, while transitioning to alternatives that will get us off the gasoline price roller coaster.

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