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Blame Government for Pain at the Pumps

Author: John Williamson 2005/08/10
Ever feel like placing a 9-1-1 call to report a robbery whenever you pull up to the pumps Gasoline prices have now jumped to a weekly average price of over 90 cents per litre, and have regularly surpassed $1 per litre in many parts of the country.

The pump price motorists pay can be broken down into four components: crude oil costs, refining costs, retailer's profit margin and gas taxes. Depending on the province, gas taxes represent between 30 and 43 per cent of the pump price. On average, taxes account for about 38 per cent of the pump price.

Alberta has one of the lowest provincial gas tax rates at 9 cents per litre. Vancouver's provincial/municipal gas tax is a whopping 20.5 cents a litre. Quebec's provincial levy is 15.2 cents/litre, plus motorists pay a 7.5 per cent sales tax on gas, and Montreal drivers are whacked with an additional 1.5 cent tax on each litre of gas they buy. Down east, Atlantic Canadians are hit mighty hard by the 15 per cent Harmonized Sales Tax (HST) at the pumps.

The original argument for imposing higher gasoline taxes was to curb consumption. But consumption has chugged along and so has governments' tax take. Between 1985 and 2003, gasoline sales steadily increased at an average rate of just over one per cent per year. According to Statistics Canada, retail gasoline sales in 1985 were just over 32 billion litres and just over 40 billion litres in 2004.

In fiscal 2004-2005, the federal government collected $4.5-billion in combined federal gasoline and diesel taxes, an 18 per cent increase over what was collected ten years earlier. One explanation for the rise is the steady increase in gasoline tax rates. The federal gasoline levy increased 567 per cent between 1985 and 1995 - from 1.5 cents per litre to 10 cents per litre.

Many of these tax hikes were sold to Canadians as a way to reduce the federal deficit. In 1995, the year Ottawa's gasoline tax jumped from 8.5 to 10 cents per litre the hike was labeled a "deficit elimination measure" by then-Finance Minister Paul Martin. Canada's deficit was vanquished in 1997-1998, but the tax remains and the federal government's gouging at the pumps continues even with multi-year, multi-billion dollar federal surpluses.

Another contributor to growing federal gasoline tax revenues is the GST and HST (paid in New Brunswick, Nova Scotia and Newfoundland & Labrador). The GST and HST are charged on the full pump price, gasoline taxes included. It is a tax levied on the other gas taxes. And as pump prices climb, Ottawa rakes in even more GST revenues. Between 1996-1997 and 2004-2005, GST revenues from gasoline sales increased from $909-million to $1.2-billion - a 31 per cent increase! At current price levels, the federal treasury will likely pump another $175-million over the next year - bringing total GST revenues from gas to over $1.35-billion.

It is time Ottawa end its gas gouging. This can be accomplished with three easy steps. First, Ottawa should end its GST/HST tax on tax bite. This will lower the price, on average, by 1.5 cents a litre. Next, scrap the deficit elimination tax, which will save another penny and a half. Lastly reduce the federal levy by 2 cents, bringing the total saving to motorists to a cool 5 cents a litre.

Canadians unhappy about gas prices should blame the government - particularly the rascals in Ottawa - because they have the ability to lower taxes. With crude prices and consumption predicted to climb, it is time the federal government give motorists a break at the pump.

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Franco Terrazzano
Federal Director at
Canadian Taxpayers
Federation

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