Ford gasoline tax cut may be camouflaged by rise in crude prices, say experts

Ontario Progressive Conservative leader Doug Ford’s election promise to lower gas taxes might not go very far, considering the price of crude oil — the most crucial element in determining prices at the pump — is marching steadily higher, industry experts say.

Ford promised Wednesday to shave 10 cents per litre off gasoline taxes if elected premier next month — 5.7 cents in provincial taxes and another 4.3 cent from his pledge to eliminate the province’s cap-and-trade system.

A resulting reduction in the harmonized sales tax (HST) would shave another 1.3 cents per litre, including a small portion that would be lost by Ottawa.

Gas prices across the country and in parts of the United States have been hovering near record highs, with little relief in sight as the benchmark price of oil closes in on US$72 a barrel.

Average gas prices in Ontario were $1.33 per litre on Wednesday, according to GasBuddy.com. Motorists in Vancouver were paying the highest average prices, at $1.59 per litre.

Gasoline taxes in Ontario total anywhere from 41 to 45 cents per litre, including 10 cents per litre in federal excise taxes, 14.7 cents in provincial taxes, 4.3 cents from carbon offsets and between 11 and 15 cents in sales taxes.

That’s less than one-third of the total price at the pump, with the wholesale price of crude representing more than half at 76.6 cents, based on a pump price of $1.38 a litre, says Natural Resources Canada.

The rest comes from refining and retail margins.

Crude costs, which are priced in U.S. dollars, are higher because of the Canadian dollar.

But crude prices could suddenly rise higher if geopolitical shocks like a failure to reach a deal in North Korea, political unrest in Iran, or a dirty bomb in the Middle East prompt panic in markets, said Marvin Ryder, a professor at McMaster University’s DeGroote School of Business in Hamilton.

“So the 10 cents a litre you might not notice it because other things that affect the price of gasoline could happen at the same time and that’s beyond Doug’s control,” he said.

While gasoline prices have risen in Ontario since the Liberals returned to power in 2003, they have moved consistently with other prices because of the underlying cost coming from the price of crude, he added.

“Obviously gasoline is more today than it was 15 years ago with the Liberals but if I look at the tax side of it, it’s moved very little, almost all of that is due to market forces.”

UBC economics professor Werner Antweiler agreed that the proposed tax cut may be camouflaged by rises in crude oil prices.

“It would be passed along eventually but consumers may not notice because gasoline prices tend to be very volatile and driven by short-term fluctuations that come from the price of crude oil as well as the pricing effects from the refineries.”

Antweiler added that carbon taxes represent a very small part of gas taxes. In British Columbia, they are 6.67 cents per litre, rising to 7.78 cents this summer.

Vancouver gas prices continue to hover near record highs thanks to a supply shortage, he said.

Dan McTeague, a senior analyst with GasBuddy.com and former Liberal MP, said Ford’s election promise should gain political support because of its timing as prices are rising.

“We predicted 2018 will be the most expensive year going back to 2014.”

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