Should we index gasoline taxes in Canada and Quebec as we already do for taxes on tobacco and alcohol products? Yes, say researchers from the Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke. This would make it possible to maintain the effectiveness of these levies and finance road infrastructure as well as public transport, they argue.
In Quebec, the last increase in the excise tax rate on gasoline dates back to more than a decade ago. That was in 2013. As for the federal tax, the last increase dates back to almost thirty years ago, in 1995.
However, without indexation, this type of tax loses effectiveness over the years, notes the Chair in a new study published Thursday. “The passage of time reduces both its effects on economic agents and the real value of revenues generated taking into account inflation,” it says.
To arrive at this observation, the researchers observed revenues from levies in relation to gross domestic product (GDP).
Result: in Quebec, in 1982, when the excise tax on gasoline amounted to 4.2 cents per liter, the revenue linked to its levy represented 1.4% of the province’s GDP, according to calculations by the flesh ; 40 years later, they only represented 0.4% of GDP, even if the tax is today 19.2¢/l.
“We did the exercise to see if we brought the tax back to the relative importance it had in GDP in 2012. At the time, the tax was 15.2 cents per liter and that represented 0 .58% of GDP. Today, if we wanted to bring it back to this level, the tax would have to be 30¢/l,” explains Luc Godbout, full professor of taxation at the University of Sherbrooke and co-author of the study.
A mechanism already applied elsewhere
In Quebec, “the deficit in the Land Transportation Network Fund justifies looking for ways to remedy it, and indexing the gas tax is a solution on the table,” argues Mr. Godbout. This fund is used to finance road infrastructure as well as public transportation.
He and his fellow researchers point out in their study that the indexation of volumetric taxes is a mechanism already applied to other products. This is the case for excise duty rates on tobacco products and alcoholic products, the regular adjustment of which is motivated by public health reasons.
The indexation of gasoline taxes, for its part, exists abroad. Australia, Sweden, the Netherlands and more than twenty American states have adopted such a mechanism.
“The other element is that with the electrification of the road vehicle fleet, the tax will bring in less and less, so the fund will be more and more in deficit, which is a challenge,” notes Mr. Godbout.
However, as electric vehicles occupy more space in the automobile fleet, “we will also have to think of ways to make them participate in the financing of road infrastructure,” he emphasizes, citing the example of the kilometer tax. .
In 2022, the Quebec government received approximately $2 billion in revenue from the tax on gasoline and fuels. The federal government, for its part, collected 5.5 billion through its excise tax across Canada, including approximately 1 billion in Quebec.