Oil Industry Promises to Pass on Savings From Any Gas Tax Cut, Feds Doubt It

OTTAWA (CP) – The oil industry says consumers would reap the benefit if the federal government agreed to cut gasoline taxes, but finance officials say they doubt it.

Alain Perez, president of the Canadian Petroleum Products Industry, told a House of Commons committee Thursday that the industry would ensure that savings from any tax cut would be passed on to consumers. “The marketplace will pass on a tax decease,” he said.

Opposition MPs and some consumer groups want a cut of one or two cents in the 10-cent federal excise tax on gasoline to help ease the impact of high fuel prices.

Perez says the industry doesn’t want to be used by government as an excuse not to cut the tax.

However, Finance Department officials told the same committee that they doubt a full tax reduction would be passed on to consumers. And, they said, it would hardly be noticed in the volatile marketplace which can see gas prices vary by 10 cents a litre over the course of a day.

“It’s doubtful that a reduction in tax would be fully transmitted at the pumps,” said Serge Nadeau, director general of tax policy analysis.

He said economic models suggest, at best, that part of such a break would be passed on.

“Typically, both the producer and the consumer would benefit.”

He also suggested that two cents a litre “wouldn’t make a big difference in the circumstances.”

Nadeau argued that the soaring gasoline prices aren’t likely to mean a huge windfall for government coffers.

Taxes from oil company profits would rise, as would the take from the GST at the pumps, he said. However, consumers will likely cut consumption, which will reduce the take from excise taxes, which are based on volume.

As well, Nadeau said, higher energy prices will drive up the Consumer Prince Index, which will trigger increases in government program such as GST rebates and old age pensions. It will also nudge up indexation in personal tax brackets, again cutting government revenues.

“If you put all of that together, it might be positive, but it’s not going to be as significant as I read some days in the newspapers,” he said.

The Commons industry committee is holding hearings on high fuel prices. The hearings come as MPs are deluged with complaints from constituents and oil prices ballooned to near $2 a litre in some areas of the country.

The lawmakers are questioning oil company officials, industry representatives and bureaucrats to find out why.

They got little satisfaction, as everyone laid the blame on Hurricane Katrina’s devastating impact on the U.S. Gulf Coast, its refineries and drilling platforms.

With supplies low and refining capacity lamed – the storm knocked out the equivalent of Canada’s entire refining capacity – prices rose in response to market forces, the officials said.

“In the short term, there’s very little we can do about that,” said Howard Brown, assistant deputy minister of natural resources.

Canadian prices follow the world market, and prices are high everywhere.

Over the long term, he added, government can try to increase energy supplies and help people become more efficient consumers, thus cutting demand. But now, the market has the upper hand.

Sheridan Brown, head of the federal Competition Bureau, said her watchdogs have been looking for signs of illegal gouging or collusion behind the gas prices, but have found no evidence of that.

“So far, publicly available information indicates that the rapid price increases in Canada are the result of serious shortages in the U.S. supply of refined gasoline due to damage to gasoline production facilities caused by the hurricane.”