Soaring prices at the pump are prompting some to call for a reduction in consumption taxes, others to propose the elimination of taxes on fuel in order to mitigate the impact on household budgets. However, doesn’t history teach that beyond a temporary and ephemeral effect, such a reduction rarely remains in the pockets of consumers?
The spike in benchmark oil prices, fueled by the invasion of Ukraine and speculation targeting Russian hydrocarbons, is largely benefiting producers, processors and retailers. According to Kalibrate, between March 10, 2021 and 2022, it is the weight of the cost of crude oil in the price of gasoline at the pump that has inflated (going from 41.5% to 50.8%) to the detriment of that government taxes (which went from 38% to 30.4%), nearly 60% of which are fixed. The share of refining remained around 16%.
The same finding stems from data from the Régie de l’énergie establishing a comparison with the 52-week average. Based on the figures compiled on the Plateau-Mont-Royal, in Montreal, the weight of taxes reached 30% (compared to 35% for the average), while that of the minimum acquisition cost rose to 65% (compared to 60 %).
The weight of the retail margin excluding all taxes remained comparable, at 5%. And the observation remains valid when an average for the whole of Greater Montreal is established.
However, in cents per liter of regular gasoline — and still relative to the 52-week average — retailer returns show the largest increase, up 58.6% as of March 10. , followed by a 50.1% increase for producers and refiners. The increase in cents per liter collected in the form of GST and QST was less, at 36.7%.
More inclined to tax?
All of this should be put into perspective that, contrary to popular belief, governments in Canada are not the most inclined to tax heavily
gasoline. If, in 2020, in a less volatile economic climate, the weight of taxes could make up roughly 40% of the price of gasoline in Canada, it fluctuated around 20% (on average) in the United States, but it exceeded 50 % in Japan, in addition to hovering around 70% in the United Kingdom, Germany, France and Italy.
In a comment published Friday, Luc Godbout, director of the Department of Taxation at the University of Sherbrooke and holder of the Research Chair in Taxation and Public Finance, added that when we compare the presence of all taxes (and environmental taxes) applied to fuel as a percentage of the price excluding tax, we see that Quebec is one of the places where this proportion (91.4%) is the lowest. “In fact, Quebec is on the 31ste rank out of 35 when included among OECD countries. We even observe that, in 27 out of 35 countries, the weight of environmental taxes is higher than the price of fuel without taxes (i.e. the proportion of taxes exceeds 100% of the price of gasoline before taxes) . »
Luc Godbout points out that beyond the GST and QST, government levies include the Emissions Capping System and Trading Rights (the Carbon Exchange, which adds 8.4¢ per liter to the initial price for each liter of fuel). Then, Ottawa and Quebec levy a tax of 10¢ and 19.2¢ per liter respectively. Added to this is a 3¢ levy for the Autorité régionale de transport métropolitain.
The speculative dimension
In short, reducing taxation in order to reduce the weight of the price of gasoline on the household budget would certainly weigh down tax receipts, but the effect, tenuous, would be to put in the reality of a government also undergoing the impact of the oil shock on its expenditure.
It should also be placed in the perspective of a speculative surge in energy prices accounting for a large part of the approximately US$30 a barrel currently separating the West Texas Intermediate from the so-called equilibrium price of around US$80 estimated experts before the outbreak of war in Ukraine. Not to mention that experience indicates that such discounts rarely stay totally in consumers’ pockets.
And others, such as Mr. Godbout in particular, also evoke the signal that governments would send about the seriousness of their climate commitments by making such a gesture.