For the past week to ten days, all three political parties in Nova Scotia have been engaged in a war of words over gas prices. Both opposition Conservatives and Liberals introduced their own proposals for gas tax relief, while the governing NDP has taken shots at both saying neither is reasonable.

So let’s take a look at the numbers and see what each party’s plan means for your pocketbook and the Province’s finances.  

Note: All numbers used in this post are estimates and intended to only provide context for the promises made by the parties.

The Nova Scotia PC Party’s Proposal

The Nova Scotia Progressive Conservative’s plan on gas taxes, released July 18^th, calls for a quarterly report on all taxes that are paid on gasoline (HST and consumption). If report shows that the government earned more revenue based on higher prices, then the taxes could be adjusted, to prevent gouging, or to ensure the Province does not earn a “windfall” of tax revenue from high prices.

Under this plan, the PC party says that all provincial revenue from fuel taxes must be spent on roads. It’s not clear whether they are proposing that revenue over and above what is expected to be spent on roads must be cut or whether any revenue in excess of what the government planned to get should be cut. The difference is significant.

The Numbers

Here are a few of the assumptions used in the calculations:

-       Average gas price in Nova Scotia so far this year of a $131.0  (from the Tory press release). That means the total amount of HST per litre is about 16.5 cents.

-       Consumption data used is from Overview of Taxation document page 22, Table 7. We assumed that consumption in 2011 will be the same as 2010. Diesel taxes were not included in the HST calculations. 

Using the those assumptions, we estimate that:

Total Provincial HST revenues from gas sales are (calculated by taking the total consumption X HST on a 131.0 gasoline) for 2011-12: $129 million

Total income from Motive Fuel Taxes, by law all money collected must go to roads (Projections from Budget Assumptions and Schedules, prepared by NS Department of Finance, 2011): $254 million

Total income from Registry of Motor Vehicles, by law all money collected must go to roads (Projections from Budget Assumptions and Schedules, prepared by NS Department of Finance, 2011): $111 million

Total income from all taxes on gas (including HST) and registry of motor vehicles is estimated at: $494 million (2011-12)

Total Road spending 2011-12 (Reported in the July 18^th edition of the Chronicle-Herald): $407 million

Returning to the interpretation issue above, that means the government would collect somewhere in the order of $87 million more in total taxes than it spends on roads.

Now here is where their policy gets even more complicated. If the PC Party is calling for all revenue not spent on roads to be cut, we’re looking at a $87 million cut the total provincial HST on gas.

Its doubtful the Tories intended to make such a large promise by sending a news release out in the middle of the summer.

More likely they are talking about the HST revenue earned above the government projected $1.24 a litre average gas price. If their cuts are based on revenue collected in excess of what’s expected, it would mean a $7.3 million cut.

A $7 million cut works out to a savings of about 1 cent a litre.

But to get that 1 cent a litre tax cut there are a number of “ifs”. First, the price of gas would have to stay above $1.24. Already, there have been 6 weeks when the price was below or about the same price as that. Also during the winter, the price typically falls. The government has been very conservative with their price projections. If the price stayed below a $1.24, there is a chance the Tories plan would call for a rise in gas taxes in order for gas tax revenue to meet expected projections.

Issues with Implementation

Of the three parties this is easily the most complicated plan.

The Tories are calling on the provincial government to produce reports for data they do not collect. The HST data the Tories want is collected by the federal government -- if the PCs want a quarterly report on HST revenue for gasoline they seem to be barking up the wrong tree. 

Also, as a practical matter, data collection and reporting cannot be done instantaneously. As a matter of (federal) law, the individual stores must be given time to remit the HST, only then can the data be collected and made into a report. It’s difficult to understand how under this plan the government would get timely quarterly data that could be used to adjust taxes. Any adjustment would have to be made based on data months out of date.

At present, revenue from the provincial fuel tax is allocated to roads. By contrast, revenue from HST is allocated to health care, education and the like. The Province gets a portion of the HST revenue from total fuel taxes. By calling for all fuel tax revenues to be spent on roads, the PC plan is asking for money to be taken away from health care and schools and to be put into roads.

Apart from these issues, the implementation of this policy is likely to be expensive to administer.

Nova Scotia Liberals’ Gas Tax Policy

The Liberals’ plan is very simple -- end the tax on tax of gasoline (charging sales taxes on top of federal and provincial gas taxes) and eliminate gas price regulation.

You can find the Liberal Party commitments HERE

Today, the price for regular unleaded is 131.0 (lowest price in Nova Scotia) , you pay about 3 cents a litre thanks to the provincial portion of the tax-on-tax (4 cents if you count the federal portion). Note: this is calculated by taking the HST that is currently charged on the after tax wholesale selling price and then subtracting the HST charged on base wholesale price.

The Atlantic Institute for Market Studies (AIMS) did a report on gas regulation a few years ago and found that eliminating it would save drivers about 1.7 cents a litre over the course of a year. You can find that study HERE.

In short, if the Liberal plan was adopted right now, drivers could see an immediate cut of about 5 cents (3 cents from tax on tax elimination and another 2 cents for ending gas regulation) at the pump.

Ending gas regulation would also save the government about $11 million in administration costs.

(Alex Boutilier from Metro News wrote a very good explanation on the debate over the Liberal party commitment to eliminate the tax on tax, you can find that HERE)

NDP on Gas Tax

The government is focused on balancing the budget as soon as possible, and hence is taking in as much revenue they can get to speed the process along. So don’t expect any relief on gas taxes from them anytime soon.

More disturbing is the Finance Minister’s insistence that there is no gas tax “windfall” when prices are high. He argues that while HST revenues on gas may be up, it means that the money is being taken from somewhere else in the economy. Therefore, taxpayers total tax bill is about the same.

You can find the Finance Minister’s comments in this news story HERE.

There’s a serious problem with that logic. The economy is not a zero sum game. That means the economy can expand or contract. Gas is a commodity people need, that impacts the price of goods. So if prices are going up, and Nova Scotia has seen some of the highest inflation over the past year, then the economy will suffer, affecting wage growth and jobs.

Conclusion

Playing with gas taxes as you can see is no simple matter.

That being said, we shouldn’t pay attention to politicians who say nothing can be done about high gas prices. At today’s prices, we pay over 40 cents a litre in total tax on gasoline. Fill up a 50 litre tank and your spending over $20 just on tax alone.

But also keep in mind those taxes on gas are just part of the tax picture. As we head into election season in Nova Scotia next year, lets hold final judgment on the parties until we see all the promises regarding the total tax we pay and how they plan to control spending.

Note: National gas tax statistics from CTF's 13th Annual Gas Tax Honesty Day can be found HERE, to sign our petition to lower gas taxes you can sign up HERE.