Thursday, September 15, 2005

On Gas Prices and Hypocrisy

Yesterday, the Canadian Federation of independent Business (CFIB) wrote an open letter to the Federal and provincial governments asking for help. Most specifically they want:

"that the federal government, along with the provinces, reduce their rate of tax on gas, as it has a particularly large impact on consumers and undermines our overall competitiveness."


That sounds like a good idea. Their recommendations are even more specific:

"With respect to federal taxes, a good first step would the elimination of the 1995 budget measure that increased the gas excise tax by 1.5¢ per liter to help fight the federal deficit. While the deficit was eliminated in 1998, the tax has remained. A second step would be to eliminate the tax-on-tax anomaly that allows the GST to be charged on top of the base price of gas, the federal excise tax and provincial taxes."


Both are excellent ideas and will help a little bit. So if I am agreeing with them where is the hypocrisy?

Its in what they didn't say rather than what they did. In that long letter, there is not one call to the Oil Companies to reduce their prices. As Aaron has pointed out in his excellent "Price of Gas Keeps on Rising: REDUX"

"The point: All the anger at government taxes is totally misguided because it'’s masking the revenues of the producers."

To be fair, the CFIB did call for the Federal Cometition Bureau to take a more active role:

"The first is with regard to the federal government’s role as competition watchdog. The Competition Bureau'’s role is to protect competition in the marketplace so that Canadians can benefit from competitive prices. The Competition Bureau'’s enforcement powers extend to gasoline and other petroleum products markets. Industry reports show that the refining margin is currently at an all-time high (about 30 ¢ per liter as opposed to 5-10 ¢ historically). We recommend that the Competition Bureau monitor closely developments in the industry for any evidence of price fixing or price gouging. "


I find it interesting that organizations like the CFIB are all for the power of the market when it suits them, but when the market itself causes them pain, the immediately stampede to the government, asking for intervention and for the government to reduce their taxes, while at the same time ignoring the much higher profits that the oil companies are making.

Some of my more conservative regulars, if they are true to their colours, should be mumbling right now that "the increased cost of gasoline is a function of supply and demand in the market, and that the additional cost of gasoline is the cost of doing business. Pass the cost on to your customers, find a cheaper supplier or use an alternative to gasoline".

Except there is no alternative to gasoline in our economy at the moment. Gasoline is the feet of clay the entire rest of the economy rests on. And unless there is an economic reason to reduce consumption or find alternatives, nothing will be done. In this I agree with Mark at Section 15.

In the face of a recent 25 cent overnight jump in the price per litre of gas, getting back between 1 and 3 cents is hardly a dent and not addressing the real problem. It is rearranging the deck chairs on the Titantic.

Plus, if I may be cynical, the 1 to 3 cent reduction will be temporary. If the oil companies pass on the tax saving to consumers as fast as they seem to pass on upward fluctuation in the price of a barrel of oil (which I doubt they will anyway), it will only be for a few days, perhaps weeks. The price will creep back up and soon the tax cut will be on the bottom line of the producers - they will make that much more in profits and we will still be paying extremely high prices for gas and oil.

Removing the GST is a good idea, because a tax on a tax is simply an issue of fairness. But instead of turning in anger to the governement and demanding they reduce the taxes on gasoline to help the price, why doesn't the CFIB and others demand accountability from producers? Why don't they seek true alternatives? Why don't they want to wean themselves off of gas?

I like what the CFIB said, but I think laying this soley at the feet of the government is wrong. Lets take advantage of this to break away from oil, or to promote conservation, or to find out what is really behind sudden jumps in price rather than whining for lower prices at any cost and asking the government to take a hit while letting the oil companies take us all for a ride.

20 Comments:

At 1:12 PM, Blogger v said...

Hi Mike. Stop talking smack about me all over the net, please. I saw the latest at WonderPuppy's site and thought I should probably ask what's up with that? It reflects poorly on your character and harms the Anonalogue brand.

You know bloody well that few Tories has tried harder - right here on your own blog - to find consensus with you. On health care among other things. I have said nice things to you. I have ignored not so nice things you've said and tried to find compromise. We've talked policy. I've tried.

I'd like to remind you that I even tried explaining this to you IN COMPILABLE JAVA CODE, so stop pretending that I'm not the smart guy that you know I am.

You have admitted all of this to me. So stop this "troll" business right now, OK? I know my public policy cold and I have a demonstrated record of that. And take a look at Canconv and see how many posts I've made on policy, fella, before you get the nerve to call me a troll. Maybe you're just jealous that my blog makes yours look so lame? Please advise!

 
At 3:05 PM, Anonymous Dale said...

All you need to do is research what products you regularly use that are oil-based, switch to one's that aren't, and cut-out car transport as much as you can from your life.

After that, you'll laugh like me at the price going up, knowing that when the shit hits the fan (and trust me, while the arguing, bickering, and lack of alternative action is going on, it will) you won't be one of the people who is so hard hit you spirial into huge debt, depression, and poverty.

Maybe I overstated that. Regardless, any reduction in your independent oil usage eases the global burden, and also prepares you for the inevitable: the world and societies without oil as their economical juggernaut.

 
At 7:59 PM, Blogger Declan said...

Colour me conservative (blue, I suppose) on this issue. If anything, I still think the price of gas is too low (mumble, mumble).

True, the oil companies are making some outrageous profits and I'd prefer to see the price increase take the form of taxes rather than (huge) oil industry profits, but at the same time, oil is a cyclical industry which needs to make profits at the high point in a cycle to be viable long term.

 
At 8:47 AM, Blogger Mike said...

Declan,

You actually won't catch me disagreeing with most of that. I am merely pointing out an inconsistency in the position of organizations such as CFIB.

That is, when it works in their favour, they are all for the 'market'. But when that very 'market' works against them, when prices change and raise the barrier to entry, they immediately do tow things:

1) Claim that it is the government's fault the price is high because of taxes. They then demand the government interfere in their beloved market by reducing taxes. This will temporarily remove a minisule amount from the price of gas, artificially dropping its price for a short time, then end up delivering that difference right back to the oil companies as profit. These are the same guys that jacked up the price of gas by 25 to 30 cents a litre overnight because they though that the storm would now made gas more expensive in the future. The result is reported above - instead of making 5 to 10 cents per litre prifit, they are making 30 cents per litre. That kinda puts a kybosh on the old 'supply and demand' arguement in my eyes, but I digress. In the end, we will still be paying high prices for gas, with greater profits to oil companies and less revenue to the government. The problem the CFIB wants to solve will not be. In fact it may be worse.

2) Demand that the government interfere in the 'market' to reduce oil prices or further regulate it. In other words when things are good for them, the 'invisible hand' is the best way to do things. As soon as that 'invisible hand' bitch-slaps them, they want the government to rush in and suddeenly the government is needed. They want it both ways - play by the market when it suits them, but make the government keep them in business when the market turns. Not exactly a consistent position on capitalism. And my economics is a bit rusty, but isn't price caps and regulation such as that a bad thing?

Now, this is an odd position for a Dipper to take on this but I think we should leave everything alone (except for the GST thing), just as it is and let the market do its thing (holy shit, did I just say that?). We should take that "deficit reduction tax" of 1.5 cents per litre and have the government invest it in alternative fuels and alternative fuels infrastructrue research and development. No tax at all on things like the Prius, the Smart Car, a tax refung for public transit passes (a good idea from the CPC) and no taxes of any kind on alternative fuels.

Take this time to encourage non-oil, renewable fuels and vehicles to solve the big picture, instead of always worrying about the price of gas...

 
At 12:06 PM, Blogger Kevin said...

Dale,

It's not that easy to cut oil products from one's life. Stuff gets to the store, usually, by way of truck, not bicycle courier (which needs oil-based lubes).

But on the whole, I think you have a point. When I lived in Halifax, our family did just fine without a car. Sadly, not all cities are helpful to the eco-minded.

kgp

 
At 1:45 PM, Blogger Herbinator said...

A good posting, as per usual.
I would tend to switch the emPHAsis away from resisting an increase in the price of oil toward resisting a decrease in the price of oil.

 
At 5:01 PM, Blogger jeff said...

That is because you are probably working for Big Oil, Herbinator. Corporate whoremonger........

 
At 5:52 PM, Blogger Declan said...

Mike - you are right, I didn't address your (perfectly valid) point about the hypocrisy of the CFIB.

I think we are generally in agreement.

 
At 8:48 PM, Blogger DazzlinDino said...

Herb was probably talking about the price of oil on the world market jeff....

What I don't get is that even though we complain they are selling us yesterdays fuel at todays prices at the pumps, they say the same works in reverse, when the price goes down they take a loss. When the hell has the price gone down enough to offset the price going up, never thats when. The price of EVERYTHING is dependant on the price of gas, as even tradesmen like myself must raise our rates to offset fuel prices. What cost me $85 to fill three months ago cost me $120 this afternoon, now do that two or three times a week, that's almost $500 a month, and trust me, it hurts. I'm not against corporations making money, but when other countries sell our fuel for less than we can, there is a problem.......

 
At 9:33 AM, Blogger Politicagrll said...

There have been several studies in the city that i live in trying to show collusion between the gaz companies on raising prices. So far they haven't proved anything except that when one jumps the price everyone else in town does (with the execption of a few independents). Maybe that is the way it happens, regardless it isn't a normal business (selling gaz) because it is a monopoly or at least monopsony market.

What annoys the hell out of me is that our bus passes keep going up and and up (and the latest excuse is gaz prices). That and improving the service the suburbs (which generally agree on), but at times it's annoying for me to be paying for people who want to live way far out to get on a bus....but in the long run it's good for everyone. However there must be some larger way of recognizing that public transit is good for everyone, even those of us that don't make enough to claim tax credits (but pay the same for the bus pass).

I agree with you overall about the hypocracy going on. I must admit though i stopped reading stuff frequently from the CFIB a while ago. A lot of their positions seem hypocritical to me.

 
At 1:51 PM, Blogger jeff said...

Actually PoliticalGirl, I believe the correct term for the current condition is called:

Oligopoly:

"A market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors."

 
At 8:04 PM, Blogger Mike said...

jeff, you are right. And thus an Oligopoly is neither fair competition nor a truly free market.

How would you deal with it, if at all?

Do you favour keeping the taxes, save the GST in place to encourage alternatives being developed, to create a truly competitive and fair market?

 
At 11:02 PM, Blogger jeff said...

Correct. I agree this is not a truly free market situation.
My solution would be to eliminate the GST on fuel, thus eliminating tax on tax double gouging. Also, I would call for more processing/refineries to start up. That is really a big reason why the high prices exist. There is plenty of relatively cheap oil, but not enough plants to deal with converting the crude into petrol.

As for alternative energy, I would let the free market handle that. I would never use taxes to fund the research........

 
At 1:24 AM, Blogger DazzlinDino said...

Agreed, specially on the GST part. We touched on this in the Fiscal debate, and came to the conclusion that GST should only be on premium, as that is more of a lyfestyle choice, not a "gotta get to work" thing. Ask any mechanic and he will tell you that premium doesn't really do anything to improve the life of your vehicle anyway, how you drive makes all the difference.

I think the problem also lies in where the small outfits who pull up oil have to send their oil to to get processed, they have to go to the big boys for that as well. Hard to compete when the bigs are pulling the stuff out of the ground too...

 
At 11:55 AM, Blogger Politicagrll said...

Ok, oligoboly. Monopsony is apparently a small number of buyers (oops).

Still i'm curious as to what people think about public transit and the best ways to encourage it (including for low income earners where public transit is close a monopoly or at least an oligarcy as there are few other options except for walking etc. as long as a place is close enough).

I'm interested in ideas for higher income earners but i've seen a lot of those. No ideas that seem to apply to those of us that are stuck with public transit good or bad. I had a very hard time getting around during the last strike including work and school- and going to work by cab cost about a third of what i made before taxes and EI and such. (although the union did have a very strong case so i don't blame them much more than the people they were dealing with).

 
At 9:34 PM, Blogger DazzlinDino said...

I can't see high income earners using transit sorry to say. Convenience far outweighs the pros of public transit. I for one have been on a city bus MAYBE three times in my life, so I am not the person to ask here either. Being a contractor, I have no choice but to drive. About the only way to get people to transit to work in a downtown area would be to eliminate all parking spots....

 
At 10:23 PM, Blogger Mike said...

Actually Dazz, when I was in Toronto, you would. The TTC was fantastic. The Go Train had even more.

If you have a nioce looking, well run system, such as the TTC, it will attract everyone.

Bummer about having to drive everywhere. You should invest in a Smart car and convert it to run on vegetable oil. You buddies will only laugh at you until you tell them how much you "gas" costs...

 
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