The Quebec tax on fuels, which has not changed for 10 years, must be increased if the State wants to deal with the maintenance deficit of the road network, the development of public transport and respect its climate commitments.
Such a measure, however unpopular it may be, is necessary if the government is consistent with its environmental obligations and commitments, concludes a study signed by Luc Godbout, Michaël-Robert Angers and Camille Lajoie, from the Research Chair in Taxation and in public finance from the University of Sherbrooke.
“We are facing a wall, explain two of the authors, Luc Godbout and Michaël-Robert Angers, in an interview with The Presstalking about the investments that will have to be financed by the Transport Network Fund (FORT), whose income is insufficient.
The FORT has been funded since 2010 by revenue from fuel tax, fees on driving licenses and registrations and by part of the revenue from the sale of greenhouse gas emission rights, according to the principle of the user-payer.
However, FORT’s expenses are increasing much faster than the tax revenues that feed it, and the Government of Quebec indicated in its last budget that the fund will be in deficit over the next five years. The “hole” is expected to reach 1.7 billion in 2027-2028.
“As the government will finance these investments anyway, it will have to take the money from elsewhere, from sales tax revenues for example, which goes against the user-pays principle”, analyzes Luc Godbout.
A diminishing return
Even if the price of gasoline increases, the value of revenue from the Quebec fuel tax has decreased in proportion to the price of gasoline, as well as in proportion to the Gross Domestic Product, the study finds.
The fuel tax represented 1% of Quebec’s GDP in 1981 and this proportion was only 0.42% in 2022. The study makes the same observation regarding the federal excise tax on gasoline, which has not increased for 28 years and whose importance fell from 0.34% of GDP to 0.19% between 1981 and 2022.
According to the researchers, these two specific taxes should at least be indexed to improve the price signal and to be consistent with government objectives.
Higher than elsewhere in Canada?
Quebec’s fuel tax is 19.2 cents per litre, the highest level in Canada. Other taxes are added, including federal excise tax, carbon tax and sales taxes. In total, taxes account for 36% of the tax-free price of a liter of gasoline in Quebec. However, the price of gasoline at the pump is not the highest in the country, say the researchers. In April 2023, a liter of gasoline cost more than in Quebec in four provinces, namely British Columbia, New Brunswick, Prince Edward Island and Newfoundland and Labrador.
Elsewhere in the world, specific taxes on gasoline are widely used to finance road transport, the study points out. Specific gasoline taxes (federal and provincial) in Quebec are among the lowest of OECD countries, with the exception of the United States.
Towards a mileage tax
There are other ways to fund the Transportation Network Fund deficit, the researchers say. The increase in registration fees is one of them, as well as an additional levy on large cars.
Eventually, a mileage tax should be imposed, because there will be fewer gas-powered vehicles and fuel tax revenues will dry up.
We’ve been talking about it for a long time, but currently, the high administration cost is an obstacle to the imposition of a mileage tax, according to Michaël Robert-Angers. “Hopefully there will be technological advancements that will make this possible,” he says.
Until then, the increase or at least the indexation of specific taxes on gasoline is essential, according to him and the co-author of the study.
An efficient market
The study by the Chair in Taxation and Public Finance establishes that sales taxes, which yield more when the price of crude oil rises, play a minor role in the increase in the price at the pump. Changes in fuel prices come mainly from the cost of crude oil, the researchers say.
Thus, during the price spike in 2022, “higher amounts of consumption taxes (GST and QST) were levied in relation to this increase, but these levies played a limited role”.
Similarly, refiners cannot be singled out when prices at the pump rise. “Despite the limited number of refineries in Quebec, this market is competitive,” underlines the study, which specifies that the cost of refining in the price of a liter of gasoline remained stable between January 2018 and February 2023, while prices at the pump have fluctuated a lot.