“It is often said that the transition to electrification of the vehicle fleet would result in a loss of revenue for the government due to the drop in revenue from the gasoline tax. Since Quebec is an oil importer and a producer of renewable electricity, do we have an idea of the net effect on our GDP of the transition to electrification?” – Jean-Sébastien Rochon
Knowing that Quebec collects a nice jackpot in taxes on gasoline sales, the question is pertinent.
First, let’s see what we’re talking about.
“For the 2022-2023 fiscal year, the Quebec government collected $2.1 billion from the fuel tax,” calculates Pierre-Olivier Pineau, holder of the Energy Sector Management Chair at HEC Montréal.
However, the proportion of zero-emission vehicles continues to increase in Quebec. Last year, four out of ten registered vehicles (42%) were carbon-neutral vehicles, according to Statistics Canada.
Let’s also remember that the Quebec government has determined that in six years, in 2030, 85% of vehicle sales must be carbon neutral – manufacturers who do not meet these targets will have to pay fines. The goal is to have 2 million electric vehicles on the roads by 2030.
Pierre-Olivier Pineau therefore calculates at this stage a loss of 40% of gasoline sales. “Which would cause the government to lose around 600 million,” he concludes.
These (lost) taxes would have been returned to the Land Transport Network Fund (FORT) which finances road network infrastructure and public transport.
Pierre-Olivier Pineau is one of those who believe that imposing a kilometer tax would compensate for this loss of revenue. The user would therefore pay for his use of the road system according to the distance traveled.
Other options are being considered to compensate for the loss of revenue, including a weight tax, says Bertrand Schepper, a researcher at the Institute for Socioeconomic Research and Information (IRIS).
This would have the advantage of taxing large vehicles, whether petrol or electric – and we know that the trend is towards very large zero-emission vehicles.
Luxury cars could also be taxed more.
“Quebec currently has a 1% tax on luxury cars, cars over $40,000. We could very well increase it to 5%, for example,” explains the IRIS researcher, who calculated that this would represent an additional $200 million for the state.
Positive for the moment… and for the future, we will see
“The effect on GDP should be positive, since we will buy less imported oil and sell more electricity produced here,” says Pierre-Olivier Pineau. “But on the other hand, electric vehicles cost more to buy than traditional vehicles… and are imported. In the long term, the savings on purchasing fuel should be greater than the expenses for purchasing the vehicles, but that remains to be seen.”
Indeed, if the calculated effect is positive at first glance, we will also have to see the impact of the electrification of the vehicle fleet on economic activity as a whole.
“GDP is an imperfect measure and it should not be the only measure taken into account,” says Bertrand Schepper.
Yes, we will sell electricity cheaper to the energy consumer, but the consumer himself will have more money in his pockets that he risks spending.
Bertrand Schepper, researcher at IRIS
What will he do with this money?
“And what are companies going to do with the money that is not spent?” adds Bertrand Schepper.
These movements will also play a role in the calculation of the GDP and, specifies Bertrand Schepper, electrification leads to expenditures which will have a positive effect on the Quebec GDP.
“Electricity distribution costs, terminal costs, production costs…”, he cites as examples.
“So yes, in the short term we can assume that it will have a positive effect on GDP,” he concludes. “In the very long term, it will depend on how Mr. and Mrs. Average spend their money, but there is a greater chance that it will be positive than negative.”
Check out our “Demystifying the Economy” section