A person fills up their car at a gas station in Montreal in March.Christopher Katsarov/The Canadian Press
In late October, days before introducing his federal budget, Prime Minister Mark Carney struck a familiar chord. “We won’t transform our economy easily or in a few months – it will take some sacrifices and some time,” he warned. His government would cut waste, make ”difficult choices” and not “play games,” he added.
Yet one would have been hard pressed to find signs of sacrifice or hard choices in the budget the Liberals presented a few days later.
One of the biggest single cutbacks outlined in the document entailed reducing payment to military retirees for medical marijuana. As we’ve previously noted, the much vaunted reduction in the public service will trim only a small part of the last decade’s bloat, largely through attrition and early retirement. Hardly the stuff of hard-nosed austerity.
Fast forward nearly six months, and Mr. Carney – now at the helm of a majority government and on the eve of delivering his first update on federal finances on April 28 – announced nothing other than a gas tax holiday.
The Liberals have suspended the federal fuel excise tax until Labour Day, a levy of 10 cents a litre of gasoline and four cents on diesel.
Opinion: Mark Carney has a mandate to make painful choices. A gas-tax cut doesn’t cut it
The measure is meant to ease pain at the pump after gasoline prices spiked due to the ongoing disruption of oil and gas transport through the Strait of Hormuz due to the U.S.-Israel war against Iran. As tax cuts go, it’s an egregious waste of money.
What’s egregious about it isn’t the $2.4-billion the measure is expected to cost. That’s a relatively modest amount for federal coffers. And if oil prices remain elevated for some time, higher revenue from the GST and corporate taxes on Canada’s own energy producers might plug that small fiscal hole entirely.
Yet a billion dollars here and a billion dollars there add up. One does not close the federal deficit by throwing a few fistfuls of cash out the window as soon as revenues inch upward.
And that is precisely what the Carney government is doing, because no lasting benefits will come from this four-month gas tax cut.
Yes, gas prices are high, but not unbearably so. Before Ottawa set the fuel excise tax to zero starting last week, Canadians had been paying somewhere north of $1.75 a litre on average for about a month.
By comparison, gas prices shot through $2 a litre, as recently as the spring of 2022, following an oil-price spike caused by the start of Russia’s war against Ukraine.
And that’s not to mention that no one knows how the situation in the Middle East will evolve. If the war ends and oil prices start to drop, Mr. Carney’s tax cut could become little more than a freebie for summer road trip enthusiasts.
Even in a scenario of prolonged high oil prices, suspending the fuel excise tax is bad social policy.
Sure, slightly lower gas prices deliver some financial relief to some people who really need it, such as lower-income Canadians in rural areas who face costly commutes just to get to work or the grocery store. But they are also a gift for someone who, say, drives around town in a gas-guzzling Hummer just because they can.
This kind of tax cut won’t do much for the economy either. Economists estimate it will take a mere 0.1 to 0.2 percentage points off the overall inflation rate, for a short period of time. And it won’t do anything to help with Canada’s chronic low productivity growth.
The only discernible justification for the suspension of the excise tax is political pandering.
As they did with the carbon tax, the Liberals rushed to deprive Conservative Leader Pierre Poilievre of a talking point, after he began calling for a federal gas tax cut as oil prices rose earlier this year. Even by the low standards of pandering, the gas tax cut seems gratuitous.
Mr. Carney now has a parliamentary majority. It is high time for the Prime Minister to announce the sacrifices he has been hinting at for over a year.
How will Canada pay for tens of billions of dollars in new defence spending? How will the government tackle runaway costs from benefits to seniors? And what is it going to do to reduce the deficit (never mind the debt) as interest charges quickly compound?
To borrow Mr. Carney’s own words: it time for tough choices, not games.