The price of gasoline has skyrocketed and by a strange bit of coincidence, this is happening at precisely the same time as the sky is falling. It’s an alarming trend. A volatile commodity is behaving the way volatile commodities behave and North Americans are in an uproar. Gas prices (which had been low during most of the pandemic) are up to around $2 a litre and therefore no one can afford to do anything any more.
Just ask the politicians.
Leading up to the upcoming Ontario election, Doug Ford’s government passed legislation to trim the provincial gas tax by 5.7 cents per litre for a six-month stretch starting on July 1. NDP leader Andrea Horwath vows that, if elected, her government will shield voters from the “predatory” prices by setting a weekly price cap. Conservative leadership aspirant Pierre Poilievre wants the government to exempt sales tax on gasoline and freeze the carbon tax.
The hysteria is confusing. Doesn’t the price of crude oil, and by extension gasoline, normally fluctuate and often follow cyclical patterns? Just a year ago, the price of crude oil less was about two-thirds of what it is today. In March, gas was $1.70 a litre and futures traders were wildly rending their garments on Bay Street.
But, an average Canadian family spends less than five per cent of its total purchases on gasoline. Why, a neophyte unfamiliar with the arcane machinations of economics might ask, is it good when gas prices are low and bad when they are high? Isn’t that something that happens in a free market?
Let’s break down some misconceptions surrounding high gas prices.
1. High gas prices affect everyone.
Well, sort of. All drivers will pay more for gasoline; however, low-income Canadians get hit the hardest. For most other drivers, high gas prices are an inconvenience, in the same way that low gas prices are a perk. If you’re rich, high gasoline prices won’t harm you any more than a rise in the price of caviar. They are a nuisance like parking tickets. You just pay more and spend a little less on other luxury goods.
Many businesses pass the increase in cost on to customers.
If you are low income, you’re at the end of the inflationary line. High gas prices hit you hard because your driving expenses are not discretionary. You need your car to get to work (in many municipalities, public transit is inarguably slower), to transport kids and other nondiscretionary trips. Similar to the cost of food, inflation takes a far larger percentage from your income.
2. So why cut taxes on fuel? Couldn’t that money be used to help the people who really need it?
Sure, you could cut gasoline taxes (which would make my joyrides less costly), but we’re still at the mercy of international crude oil prices. Instead, the federal government could take a more targeted approach to help low-income Canadians. For instance, Ottawa could temporarily increase the GST/HST credit to compensate for inflation and high gas prices. The GST/HST credit is a tax-free quarterly payment that helps low-income individuals and families offset the sales tax. Increasing this credit would be a temporary, focused way to deal with high gas prices and inflation and alleviate the stress on those who are most affected. But it wouldn’t make it cheaper for someone to fill their Porsche Panamera.
Plus, “it wouldn’t be fair” for everyone and we all know how legendarily fair life is in the 21st century.
3. Gas prices are rising because of the war in Ukraine.
True. Russia is a major exporter of crude oil and sanctions against it and other economic fallout have caused gasoline prices to rise. Meanwhile, demand is up. No one is exempt from the effects of this horrific conflict. For some (the Ukrainians) it means being attacked with missiles and suffering inhumane atrocities. For Canadians, it means paying more than $2 a litre for gasoline. Who has it worse? It’s tough to say.
4. Aren’t gas prices in Canada still relatively cheap compared to the rest of the world?
True. In backward nations such as the Netherlands, Norway, Italy, Denmark, Germany, the United Kingdom and France, gasoline prices are up to three times what they are in the United States. In some of these “societies” taxes make up to 75 per cent of fuel prices. Don’t want to pay these high gas prices? Fine, take a ride on one of their unbelievably affordable, efficient and fast public transit systems or high-speed trains.
5. Can I combat high gas prices by trying other means of transportation such as public transit, cycling or walking and save the car for nondiscretionary trips?
Yes, but that would mean not driving. Also, you might miss out on the tax cut on gasoline.
6. Won’t gas prices come down?
Why not ask former Prime Minister Stephen Harper? He vowed to make Canada an energy superpower and tied the country’s future to the price of crude oil. In summer 2014, oil was at US$120 a barrel. The skies were bright. Anyone who had lived in Alberta for more than 20 minutes could have told Stevie Blunder the price would drop. And it did, faster than you can say, “Iceberg, what iceberg?” it hit US$65 a barrel in December 2014. Then the Keystone XL Pipeline went limp and around 100,000 Canadians were out of work.
Enter Trudeau the Younger, stage left.
So yes, the price of gasoline will go down again. When? I can’t say, but I can guarantee that – after it does – sooner or later it will go up.