Wednesday, May 21, 2008

Would a gas tax cut lower pump prices?

Every time the Canadian Taxpayers Federation suggests gas taxes should be cut, someone claims that it wouldn't matter because oil companies would suddenly jump in and take up the room.

From the Montreal Gazette:

"It's unlikely a tax cut would actually lower prices much. It's far more likely that it would simply shift government revenues into the coffers of oil

Unfortunately, those who make these lofty claims have no data to back them up.

Why? Well because there is none. What the data shows is that the difference in gasoline prices across Canada is largely based on the difference in taxes.

Check the chart below.

Last year, Edmonton had the lowest average pump price in Canada of 110.1 cents/L. St. John's had the highest at 125.6 cents/L.

That is a difference in the pump price of 15.5 cents/L.
The difference in gas taxes between Edmonton and St. John's... 16 cents/L.


If gasoline taxes had no impact on the price at the pumps, the fine people of St. John's would pay exactly the same amount as the people in Edmonton. If Canadians are willing to pay 125.6 cents/L, then every Canadian would pay 125.6 cents/L.

The crude oil component of gasoline prices was 55.5 cents/L last year all across Canada. The refining margin and the marketing margin vary slightly from city to city and province to province (with them both being the smallest in southern Ontario - likely because there is more people and economies of scale kick-in) but the biggest variance is the amount paid in gasoline taxes.

So, what this means is that if gas taxes are cut, consumers will see the savings. They're arguably seeing them right now in Edmonton, where the provincial gas taxes are the lowest in the country, and not seeing them in places like Montreal, Victoria and Vancouver, where the gasoline taxes are the highest in the country.

No comments:

CTF You Tube Channel

Canadian Taxpayers Federation's Fan Box