I would like to thank members of the Industry Committee for this opportunity to bring the Canadian Taxpayers Federation's perspectives to your deliberations on rising gasoline prices and the high taxes motorists pay at the pumps.

Since my time is limited, let me get right to the point. Who should Canadians blame for high gas prices? The government.

On average, taxes account for a third of the pump price, meaning the effective tax rate on a litre of gas is 50 per cent. Depending on the province, gas taxes represent between 27 and 38 per cent of the pump price. Prices now average more than one dollar per litre – of which approximately 33 cents is tax – and family budgets are being squeezed as a result.

According to a public opinion poll, published this week by Praxicus Public Strategies, 3 out of 4 Canadians believe the high price of gas will negatively impact their finances.

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 7 per cent GST and 15 per cent HST (paid in New Brunswick, Nova Scotia and Newfoundland & Labrador). The GST and HST are charged on the full pump price, gasoline taxes included. The tax is levied on Ottawa's 10 cent per litre fuel excise tax as well as provincial taxes, which range from a low of 9 cents/litre to a high of 20.5 cents/litre. This tax-on-tax scam adds, on average, another penny-and-a-half to gas prices. In HST provinces, the 15 per cent HST adds a stunning 3.8 cents to each litre of gas.

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 $300-million over the next year - bringing total GST revenues from gas to over $1.5-billion.

With high crude prices, it is time the federal government give motorists a break at the pump. 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 motorists another penny and a half. Lastly, reduce the federal levy by 2 cents, bringing the total saving to 5 cents a litre.

One week ago, Poland became the first European Union country to cut its gas tax in response to high oil prices. According to the Associated Press, the decision "has already eased costs at gas stations."

Canadians unhappy about gas prices will continue to blame Ottawa because only federal lawmakers can have the ability to offer immediate relief in the form of lower fuel taxes.

Canadians cannot control the world price of oil, but there is plenty than can be done to reduce fuel taxes. A 5 cent/litre reduction will pump $2-billion back to motorists. Even with this modest reduction, the federal government will still collect billions of dollars in fuel tax revenues each year. Taxpayers want action in the form of lower taxes on fuel, not more excuses from politicians as to why gas taxes cannot be reduced.

Thank you.

By: John Williamson
Posted: September 21, 2005
Topic: Federal

Contact the regional director Gregory Thomas for further information.

Type: Related

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