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(Jean Larue-Fréchette/iStockphoto)
(Jean Larue-Fréchette/iStockphoto)

The Green Highway

What fuel efficiency means to the taxman Add to ...

The move to more fuel-efficient cars is gaining traction as now both Canadian and U.S. car purchasers are stating that fuel economy is the most important consideration in selecting a new car.

However, if we all move to fuel-efficient cars and therefore start purchasing less at the gas pumps, you can expect the tax man to butt in.

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The heavy thinkers in Britain, home of Congestion Charges, are on the case. According to research commissioned by the Royal Automobile Club, the U.K. government will lose out on £13-billion in revenue in the next 15 years.

Stephen Glaister, director of the RAC Foundation, said, “The irony is that while ministers encourage us to buy greener, leaner cars, they are being forced to look at ways of clawing back the money motorists think they will be saving.”

According to the research, the British government will have to push up the taxes from 58 pence per litre [92 cents] to 87 pence per litre [$1.38] to fill the hole.

The foundation is also predicting the government will start to surtax the electricity used in battery-powered cars. An author of the report says that road taxes based on mileage and congestion would work better than fuel taxes.

In Canada, taxes take a hefty bite at the gas pumps and, of course, being Canadians, we pay tax on the tax.

Here in Ontario, the provincial government collects 13 per cent Harmonized Sales Tax [HST] not only on the price of gasoline, but also on the 14.7 cents/litre provincial gasoline tax. It’s even worse in British Columbia, where there’s a 6.7 cent Carbon Tax and in Vancouver there’s an additional 17 per cent Translink transit tax. And yes, the province charges HST on both the fuel and the taxes.

Auto analyst Dennis DesRosiers has reported that Canadians’ total gasoline consumption declined in 2011 from record-setting 2010 levels. Gasoline sales dipped 1.6 per cent. Said DesRosiers, “This decline represents the most significant usage drop in our time series and comes on the heels of an above-average 2009-2010 gain [+2.7 per cent].”

Surprisingly, DesRosiers added, “In the short term, we do not expect the increased fuel efficiency of new vehicles to impact gasoline usage appreciably.”

Obviously, the RAC thinks otherwise and you can bet tax departments will be quick to figure out what a 1.6 per cent decline means to them.

Across Canada, the effective tax rate on gasoline runs around 45 to 50 per cent.

If you were to assume that a decrease in gasoline consumption of 1.6 per cent could be an annual, compounded event, you can be sure governments will make up the lost gas tax somewhere else.

Car companies are on target to meet similar rules in both Canada and the United States that will set fuel economy standards for new vehicles at a combined average of 6.67 litres/100 km [35.5 miles per U.S. gallon] by 2016. The Corporate Average Fuel Economy [CAFE] standards also call for a fleet-wide average of 54.5 mpg by 2025, if U.S. President Barack Obama is still in office in the new year.

Of course, we’ll be burning less gas and, with every tax dollar supposedly saved, we will move closer and closer to toll roads and congestion charges.

It might make a lot more sense than the way we do things now.

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