Gas and Heartburn

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This 'have' province has to cut consumers a break

There's been a lot of talk lately about gas prices, what with the recent increase to about $1.20 per litre (regular unleaded).

I've heard some people suggest that we need to conserve more, but I think most of us by now have pretty much exhausted that option. In my case, I never drive somewhere unless it's necessary to do so, and I never just go for a drive'. I suspect that applies to most people out there.

Some will suggest that those who drive enormous, gas guzzling SUVs and trucks are being irresponsible, and there is certainly some truth in that. I really don't feel a lot of pity for them.

However, I do think that the average person who drives a four cylinder car, and only as much as necessary, is being unfairly punished. And there are a lot of us out there

However, with all the talk these days about gas prices, it rarely gets mentioned that the provincial and federal governments are the reason you pay so much per litre.

Right now, of the $1.20 you pay at the pumps, you are forking over more than .16 Cents in Provincial Gasoline Tax, ten cents in Federal Excise Tax and, on top of that, almost .14 cents in HST. The combined taxes are just over .40 cents.

If gasoline was not taxed at all, we would be paying 79.7 cents per litre right now.

You can see the complete breakdown here, at the Public Utility Board's Petroleum Pricing Office site.

If you scroll down a little further on the above Questions & Answers' link, you will find this question: "Newfoundland and Labrador has its own source of offshore oil and a refinery, so why aren't fuel prices cheaper here?"

Here is the PUB's answer to that question:

"The provincial government receives significant revenue from both of these entities, which are operated by private enterprise. These businesses seek to remain profitable because they are required, by law, to get the greatest return on their investments for their shareholders. As a result, their products are sold for what they are worth on the commodity markets.

"Like the production of any good, from firewood to microchips, the object is to seek the best return possible based on current market values. The same can be said for fuel products. A company will sell fuel products at the greatest return that can be achieved. Therefore, even if all the offshore products were available to the local market, it doesn't necessarily mean that fuel prices would be cheaper."

Isn't that cute? The PUB conveniently shifts responsibility back to market dynamics. Never mind that market forces peg the cost at a very reasonable .79 cents per litre, and that's what we'd be paying if the province and the feds weren't gouging us for more than .40 cents per litre.

There aren't as many hidden taxes on furnace oil, but the HST we are paying on that product is wrong, given that we live in a winter climate and some people are forced to walk the shopping malls during the day, just to keep warm.

This year, we will officially become a have' province, with a budget surplus approaching a billion dollars. The citizens of Newfoundland and Labrador have waited a long time for their resources to pay a windfall like this. Now it's time to give the people a dividend on some of that wealth, through tax reductions on gasoline and heating fuel. Yes, debt reduction is important, and a good chunk of the surplus should be allocated to paying down what we owe. But it's also time to cut a break for the people of this province.

I am not alone in this thinking. In an interview, George Murphy (right, CBC photo) of the Consumer Group for Fair Gas Prices reiterated these points.

"You can be pretty much guaranteed that the province is going to be having some kind of party, because their share of the royalties at the end of March is going to be breaking a billion dollars," he said. "It's going to be a momentous occasion for this province's finances."

Based on this financial turnaround, Murphy thinks that it's time to give consumers a break in the form of a lighter tax burden. "This would correct some of the financial inequities that the people have faced over the years, because the province had to face this too. I don't know how many times Brian Peckford jacked up the sales tax, for example Peckford's last increase up to 12 per cent pretty much broke the backs of everybody!"

Murphy thinks the biggest injustice is the levy of HST on gasoline, home heating fuel and automobile insurance. "We are even paying HST on home care!" he said. "The problem is, the HST agreement really can't be changed unless you have agreement with Nova Scotia, New Brunswick and the federal government. That's the Catch 22 in all this."

Murphy thinks the province has no option but to reopen the HST agreement, which was negotiated back in 1997 when oil was at $16 per barrel. In the meantime, government does have the authority to lower taxes unilaterally by eliminating the Provincial Gasoline Tax of more than .16 cents per litre. That, in itself, would make a tremendous difference.

Tom Marshall acting on the premier's behalf has been poor-mouthing us lately, carting around that condescending and patronizing debt clock to the pre-budget charades. But enough of that. We are not poor. We may be seeing a billion dollar surplus this year. That money does not belong to Danny Williams. It belongs to you.

It's time to give the people a dividend.

UPDATE: There's an interesting perspective on this over at the Sir Robert Bond Papers. If Ed is correct - and he often is - the government is planning to plough oil revenue into future hydro investment.

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  • Mark
    July 27, 2010 - 14:53

    Geoff, while I disagree with your prescription, your diagnosis is bang on.

    Just two points. The first is what a ridiculous sentence you've found on the PUB website, the one about businesses being required BY LAW to return greatest investment to shareholders. (emphasis mine). There's obviously no such law.

    Secondly - it is possible to remove the provincial portion of the HST from any product, provided you do it as a point-of-sale rebate. Sounds confusing, but Nova Scotia has already done it with heating fuel and electricity.

    It would be harder to do with gas stations as every retailer would have to issue refunds at the point of sale of each gas purchase. But for home heating fuel, or for electricity, given the nature of billing and the smaller number vendors, it could be done.

    Overall though, as much as we complain, only our American neighbours pay less for gasoline than Canadians. While we all sometimes believe that its not possible to cut our fuel consumption, we're going to have to, even if it means rethinking the communities we live in and the way we all get around. This steady rise in oil prices, unlike previous spikes, is driven by demand in India and China, rather than supply shortages in the Middle East. As an Asian middle class measured in the hundreds of millions starts to purchase their first automobiles, the pressure on prices can only go up. You can cut taxes today, but the price increases will likely continue.

    On the flipside, as transportation becomes more and more expensive, local products become more competitive, and maybe over the long term we'll rediscover local means of production - in agriculture and manufacturing, for example - that sustained our small communities for centuries before we all had cars. Something to think about.