High fuel prices are here to stay: experts

TORONTO – With prices at the pumps reaching record highs, Ontario could join Alberta in temporarily slashing gas and fuel taxes in an effort to curb runaway gas prices.

While these tax reductions may provide some relief to motorists, experts say these measures don’t address the root of the problem, which exist outside of provincial jurisdiction.

The Ontario government introduced legislation on Monday that would lower the provincial gas tax by 5.7 cents per litre and the fuel tax by 5.3 cents per litre for six months, fulfilling a campaign promise made back in 2018. If passed, this would take effect in July — after the provincial election in June.

Last month, the Alberta government also announced it would stop collecting its 13 cent per litre gas and diesel tax as long as the cost of West Texas Intermediate crude remains above US$90.

Dan McTeague, president of Canadians for Affordable Energy, believes the 5.3 cent per litre decrease in fuel taxes could have wider impacts across the economy given that our supply chain relies heavily on diesel transportation.

“It certainly sets the stage for much better prices. I think consumers will welcome this,” he told CP24 on Monday.

Jeff Rubin, former chief economist for CIBC, calls these measures “significant” and says these tax cuts will be “noticeable” for motorists.

“It, however, unfortunately, does not redress the fundamental problem that is driving pump prices ever higher. And that’s the basic imbalance between surging global demand for oil and stagnant, if not declining, production,” he told CTV’s Your Morning on Tuesday.

The surging demand for oil comes as governments around the world are loosening their COVID-19 restrictions. On top of that, Russia’s oil production has declined amid the global sanctions levied on the country after it invaded Ukraine.

In an attempt to address the mismatch between supply and demand, U.S. President Joe Biden announced earlier this week that his administration would release one million barrels of oil per day from the U.S. strategic reserve.

Experts also point out that gas and fuel taxes are an important revenue source for provincial governments, often going towards transportation and infrastructure improvements.

“I just don’t think the provincial government has the fiscal room just yet to meet that 5.7 cents per litre decrease on the gasoline side and 5.3 on the diesel side, but it is welcome news when it gets here,” McTeague said.

Rubin also notes that there are likely political motivations behind these tax cuts, given that the Ontario election is two months away and Alberta Premier Jason Kenney’s leadership review is set to begin this weekend.

“Motorists are very irate at a politically sensitive time and they’re trying to address their concerns the best they can again,” he said.

Instead of cutting gas taxes, some provinces like B.C. and P.E.I. had opted to send motorists a one-time rebate cheque to ease the financial burden at the pumps. Meanwhile, the federal carbon tax rose last Friday to $50 per tonne and the feds have declined to pause further increases to the tax.

“These high prices are going to be with us for the next few years. I don’t see them coming down,” McTeague said.