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

If U.S. President Joe Biden succeeds in his bid for pause gas taxes in America, Canada will be Canada’s only G7 country to not bring in a tax cut to help with pump prices.

Wednesday’s request by Biden to Congress for a suspension of federal gasoline- and diesel tax rates for three months was made by Biden. Similar actions were taken by the U.K. (lower taxes), France, Germany, Italy, and Germany (a consumer rebate), Japan (subvention to wholesalers), and Japan (a suspension of federal gasoline and diesel taxes for three months.

As inflation — headlined by gasoline price hikes — hits highs not seen since Billie JeanTop of the Billboard Charts and Return of the JediCanada will follow the lead of the United States in showing movies. Should it?

So far, Ottawa has not yet responded to this question. Jonathan Wilkinson, Minister of Natural Resources saidThis week, the federal government stated that it does not have immediate plans to reduce prices at the pump. However, it did temporarily suspend the federal gas tax.

Instead, Canada wants to stabilize global oil price by increasing supply. Wilkinson is not impressed. saidIt is already happening. He also said aid for Canadian families is, in the meantime, focused on areas Finance Minister Chrystia Freeland highlighted in a speech last week: increases to federal benefit cheques, cuts to child-care costs and upcoming increases to Old Age Security and the Canada Workers Benefit.

Conservatives have been urging the Liberals to reduce gas taxes for months, including lifting the GST from gasoline and temporarily suspending carbon price.

Not the solution, experts say

Rory Johnston, founder of the oil market data service Commodity Context, says any type of gas tax holiday would appear 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 approach is the wrong tool for the job at hand.

A shortage of gas is the main reason for high gas prices. saidArtificially lowering the price of the pump won’t make it cheaper. 

“The prices are going to rise until you kill demand so that the market can balance,” he said. “We are just draining inventories now, left and right. By creating a holiday to tax gas, you are subsidizing additional consumption at lower prices.

Johnston says he’s not sure why the Liberals haven’t moved more quickly to reduce prices at the pumps but speculated the government is concerned about the narrative around the transition to cleaner energy. “Since it’s generally against the move [toward a tax holiday]He said, “I’m not disappointed.” said. 

Prof. Kevin Milligan of the Vancouver School of Economics at the University of British Columbia agrees a tax holiday is not a sound policy, given how tight oil is on the supply side. 

He said, “When that’s true, the market producers have more control.” saidThis means that a tax reduction is more likely to increase producer profits rather than lower consumer prices. 

Solutions outside the box

Johnston said he understood the pressures that governments around the globe are under to act.

“This is a moment, I think, that calls for creative, out-of-the-box policymaking — things that we haven’t necessarily tried before.”

He had three ideas.

1. Rethink the gas taxesYou can create a sliding escalator, which increases with gas prices but decreases when they drop, to remove some of the volatility. 
2. Offer direct cash but only to the lower income range. Instead of paying lower taxes, send money He says that it would make life more affordable and not artificially subside the price of a scarce commodity. But both Johnston and Milligan warned that simply writing cheques for everybody to deal with gas costs risks making inflation worse.
3. Look into restarting some facilities, Like the Come by Chance refinery in N.L. which was closed during the pandemic. It is being converted to renewable diesel. He stated that bringing back oil production will “help reduce that refinery bottleneck and get the price we pay at the pump back down closer the price of global oil.” said.

Milligan, for his part, says the federal government has a number of areas under its control that it can and should focus on to bring inflation down — relieving bottlenecks at airports, improving supply chains and lowering tariffs on imports — which would directly lower prices for Canadians in stores.

He also stresses that the Bank of Canada must be allowed to do its job to bring down inflation.

Milligan saidThe challenge is that governments tend not to pay attention to the large middle class in times of crisis.

He stated, “The problem lies in trying to find something that’s not inflationary in itself that can help the broad middle class.” said. “That’s where the real challenge lies.”