Gasoline prices will be reduced starting tomorrow in Ontario, as provincial tax relief takes effect until December 31, 2022. Ontario is one of the only Canadian provinces to take such a step ; its neighbour, Quebec, does not offer such a reduction. Will Ontario consumers come out on top?
The Ontario government passed legislation in April, just before the election, reducing Ontario’s gas tax from 14.7 cents per liter to 9 cents per litre, a reduction of 5.7 cents . Bill 111 also reduced the price of fuel, such as diesel, by 5.3 cents per litre. According to the CAA, the average price of gasoline in Ontario is around $2 per litre, a 41% increase over the average price in 2021.
The rising cost of living “is the number one concern of Ontarians,” Premier Doug Ford said Thursday at a news conference promoting the reduction. His party, the Progressive Conservatives, also focused its campaign in May on affordability. “The explosion in the price of gas” is one of the things that hurts the wallets of Ontarians the most, said the premier, who was accompanied by his ministers of finance and transportation.
Doug Ford called on the federal government to do its part by also reducing the taxes it imposes on consumers, such as the excise tax, which has a flat rate of 10%. At the end of June, Natural Resources Minister Jonathan Wilkinson rejected the idea. “I think such a measure would be irresponsible,” said the Minister in an interview with The Canadian Press.
According to Sébastien Labrecque, chief economist of the public policy institute of the firm StrategyCorp, the financial impact of such a measure on consumers could be marginal. The best-selling sedan in the country, the Honda Civic, for example, has a 47-litre tank, which means that a motorist filling it up would only save $2.68, notes the Ottawa economist. Driving a Toyota RAV4, the top-selling SUV, would save just over $3. It is an “almost symbolic reduction considering the major geopolitical factors” influencing the price of gasoline, says Sébastien Labrecque.
This could decrease the money going into government coffers. Ontarians, on the other hand, may be tempted to travel more because of the reduction, however small. According to an Angus Reid survey released last week, 56% of Canadians have decided to stay home when they used to drive because of the price of gas. If these people choose to travel, the volume of gasoline consumed by Ontarians could increase and thus neutralize the reduction in the tax.
Analyzes of consumer behavior following a government action at the pump—whether it increases or decreases the price of gasoline—are few. A few researchers, however, have examined the impact of imposing a carbon tax in British Columbia in 2008. In 2018, University of Manitoba professor Chad Lawley determined that the 5% tax reduced carbon consumption. 8% gasoline; another study published in 2014 came to a similar result.
Political decisions?
Quebec Finance Minister Eric Girard may have had this data in mind when he said that Quebecers would not benefit from relief at the pump like Ontarians. In March, the minister suggested that a reduction was a bad idea and that high gas prices could help the province reduce its greenhouse gas emissions.
According to Sébastien Labrecque, this decision in Quebec could be tinged with politics, with the approach of an election campaign in October. “The CAQ will hesitate to introduce a reduction before going to an election because it feels that environmental issues are important in the eyes of the population, especially among young people,” he said. However, the same goes for the Ontario government, which announced the reduction to one month before the election is called. “It was smart politics,” notes the economist.
Little talk about diesel
Sébastien Labrecque is however surprised by the lack of promotion of the reduction of the tax on diesel, the one affecting gasoline a lot of attention. “Trucks transporting groceries are mostly diesel powered. In theory, if the price of diesel decreases, it will reduce the cost of transport companies and, in doing so, could potentially lower the cost of goods and food”, thinks the economist. In June, grocery store prices rose 9.7% from the same time in 2021.
On the other hand, Premier Doug Ford mentioned this aspect only briefly during his speech on Thursday. Relief at the pumps “is going to help reduce the price of everyday goods,” he said. “My reaction to this comment is: are there analyzes at the Ministry of Finance which show that there will be no impact? “said Sébastien Labrecque on the phone.