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.