The Gasoline Tax Scam

Recently the Conservative government decided to help ease Ontario's problem with inflation by temporarily cutting the gasoline tax by 5.7 cents per liter. I thought I'd share some of my thoughts about this with readers.

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First of all, let's look at how much gasoline costs have risen. Here's a bar graph that shows average Canadian gasoline price per liter that comes from the Trading Economics website. It's about par for the course that I could find in the mainstream media. 

The first thing to pay attention to is a subtle way the graph has been drawn in order to mislead readers. Take a look at the August 2021 bar. (It has the number "1.1" on top of it.) Now look at the June 2022 bar. (The last one, with 1.6 next to it.) Using a ruler to measure the bars on the screen in front of me, I see the former bar as being 150 millimeters tall and the latter as 900mm. Looking at their relative size suggests to the unconscious mind that in June 2022 gas cost six times as it did in August 2021. The fact of the matter, however, is that it only costs 45% more. This is an example in support of the idea that "there are lies, damn lies, and, statistics".

I've gone through statistics Canada data and created my own bar graph that will hopefully convey a more accurate picture of what's going on. 

The first thing to notice between my graph and the other is that my bars are representative of the total price of petroleum distillate whereas the ones from the other graph are designed to "sex up" the story, hopefully get it repeated on FaceBook, leading to more clicks on ads, and, therefore more profitable. (Don't forget, mainstream news is a business, geared towards making money, and, it does so by being entertaining---which includes stoking anger and fear---instead of informative.)

Beyond using a non-misleading bar size, I've increased the sample size from one year to ten. The idea is that it's important to put the present price increases into a larger context. Let me walk readers through my graph to illustrate this point.

Each bar in both graphs represent a month's average gasoline price. If you look at the first graph, you will see that it ends at June of 2022 and the one I made from Statistics Canada data goes to May 2022. The lowest price for the first chart is ten bars back from the end. Counting nine bars back from the end of my chart will take the view to the same place (it's bar number 77). If you go back another 12 months, you will find the lowest gasoline price in the last ten years (that's bar 65 or April 2020 when it was at $79.1/liter).  

The larger sample size illustrates that markets tend to bounce around. Sometimes things cost more, sometimes less. Right now the market is trying to correct itself from the pandemic (which isn't really even over yet) at the same time that the world's largest oil producer is under an embargo because it invaded it's neighbour. Surprise, surprise, right now the cost of gasoline is going up!

Once we've gained a little more perspective on the price increase, let's think about how much of an impact that 5.7 cents/liter gas tax has on the overall cost. If gasoline now costs as much as $2.00/liter, removing the tax is only 2.85% of the total cost. I might be a grump, but if something goes up by 45% removing a tax that only ads 2.85% to the price doesn't really help all that much.

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The next issue to think about is what inflation means for people. To understand this point, we need to understand the difference between "elastic" and "inelastic" demand. Elastic demands are ones that people can do without entirely or which can be satisfied by some sort of alternative produce. 

With regard to food costs, if the price of potato chips and soda pop goes up, people can just do without. If lettuce gets too expensive, you might find that cabbage is still affordable so you make coleslaw instead of Caesar salad.

Inelastic demand is the part of your consumption footprint that it's hard to do without. Both housing and transportation fit the bill---we have to have a place to live and the vast majority of Canadians live where they cannot walk or bike to wherever they need to be. And even if you wanted to find a cheaper place to live or way to get around, doing both requires a fair amount of long-term planning and may simply not be an immediate option no matter how much you would want them to be. 

But just because something is difficult doesn't mean that it's impossible. And this is especially true with regard to gasoline prices. It just requires a little forethought and long-term thinking. 

This is especially important with regard to transportation, because for the last few decades two contradictory trends have been working their way through the auto industry---ones that have a direct impact on the cost of gasoline. 

First of all, the energy efficiency of smaller cars has increased dramatically. Take a look at the first of three graphs I'm copying from a Conversation article. 

If you're having trouble seeing the numbers, click on the picture.

As you can see, between 2005 and 2013 there was a pretty substantial reduction in the liters of gasoline used to drive 100 kilometers (something like from 10 to 8, or 20%---that's the equivalent of a 20% reduction in the price of gasoline!) but this stalled and then started to go back up in 2015. What this means is that over the long haul, personal transportation is an elastic demand---you can cut the amount of gasoline you have to buy by choosing increasingly efficient types of vehicles. (I will ad the caveat however, that this only applies to people who have enough disposable income to pick and choose their ride. Poor people have to drive whatever second-hand car they can afford---which often means a gas-guzzler.)

Remember the "back-sliding" in fuel efficiency in the above graph that started in 2013? If you look at the next graph, you can see what caused it. (Hint, it had little to do with poor folks driving rust buckets.)

Even though trucks (which includes pickups, SUVs, and, vans in automotive discussions) have gotten more efficient than they used to be, they are inherently less efficient than cars. That means if a significant fraction of the population stop buying compact cars and switch to trucks, they are going to end up paying more at the filling station. And the difference between the two is going to be a LOT MORE than the 5.7 cents/liter tax the province levies.

So why have Canadians decided to buy gas-guzzling trucks instead of fuel-efficient compact cars? The simple answer is because they can afford it. The following graph shows the relationship between the cost of gasoline and the efficiency of the vehicles people drive. It's obvious that if the price of gasoline goes down, lots of people stop considering mileage when they purchase a vehicle, and, vice-versa. 

 

But that's just one part of the reason why people buy trucks. There's also a psychological issue at play. 

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I grew up on a farm. We always had a pickup truck. My first paid gig as a kid involved growing sweet corn which my father took in the pickup to sell to a local grocery store. We used it to ship pigs to the slaughter house, move sand and gravel, the cement mixer and other tools, rubble, garbage, lumber, etc. It got dings, it got manure on it, it got scratched going down gravel roads and pushing through the bush on trails. It got muddy or dusty when I drove it out onto fields loaded with fertilizer. It worked just as hard as we did. But when we went to visit family or do something else non-work related, we drove the Chevy Chevelle (I know, that was a "muscle car" instead of a compact, but we bought it second-hand and my older brother was involved in the purchase.)

I am absolutely amazed at the extremely expensive, "tricked-out" pickups I see on the streets of Guelph. These aren't working trucks---they're fashion statements. Last week I saw one of these things drive over the onions in my boulevard garden because the driver was so far above ground that he lost track of where his wheels were. The beast looked something like the truck below.

The jpg file is actually labelled Cool Truck-Sexy Truck. (Give me a break!)

Not only did the vanity prop that crushed my chives and walking onions look like it had never done a day's work in it's life, it is also an inherently dangerous thing to drive. That's because---among other things---raising a truck like this pushes up the center of gravity (roll-overs on turns), lowers the ability of drivers to see around them (hence my crushed garden), and, towers over the "crumple zones" that are designed to protect other drivers in car crashes. And they get terrible gas mileage too.

So why exactly are people driving these ugly monstrosities? I cannot believe that it is for any other reason than because it projects the image of "masculinity" for people who can't think of anything more intelligent to waste their money on. This was driven home to me a few years ago when I saw a truck that had a set of fake testicles dangling from the trailer hitch.

The advert that went with this photo said these "truck nuts" cost $70.

What is going on here? I suspect that it's because a fraction of the population use trucks in the forlorn hope that some of the luster of the "macho red-neck lifestyle" will rub off on them. If you think I'm pushing things too far, consider the following advert.

(Having spent at least part of my life doing the sort of things associated with these "truck tropes", I feel that it should go without saying that this is nostalgic nonsense. There's nothing "cool" about dangerous, hard, physical labour. It doesn't pay all that well and leads to osteoarthritis.)

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There's another aspect to this tax cut that I think needs to be shouted from the rooftops, but which I've never heard anyone mention in the mainstream press. There's an opportunity cost to any tax cut. 

Opportunity costs are what economists call any the things you can no longer do because you made a decision to do something else. So if you decide to take the kids to Disney Land and this costs $2000, that means you can't put that money into a fund to support them if they want to go to university. In the same way, if the government of Ontario decides to cut the gas tax for half the year, this means that they won't have that money to put into hiring more nurses for our hospital emergency departments.

Ontario has a tradition of using gasoline tax revenue to fund public transit. In the 2021-2022 year, for example, Guelph received $3,247,990 from the province that was announced as coming from our gasoline taxes. (There was a one-time 'top up' from general revenue this year because of the decline in gas tax revenue due to the pandemic---but this wasn't to increase the amount paid, just to maintain it in the face of a shortfall because people were driving a lot less than usual that year.) In total, gas taxes funded provincial transit that year to the tune of $375.6 million.

This has been going on for a while. In the 2019-2020 year Guelph Transit received $3,150,233, and all the province's cities received $321.5 Million in 2014 and $332.9 million in 2015 . Please note, I am not saying that the provincial government is going to cut the amount of money it puts into public transit, only that it will have to cut what it funds somewhere. (If it just borrows the money, that too is another cut. That's because the current Ontario debt is around $400 billion, and the interest charges that the government had to pay on it in 2020 was $13.3 billion---the fourth largest item in the budget. And remember that the interest rates were very, very low in 2020. They are now going up, which will make that number grow---even if the province were to immediately stop all borrowing. This means that unless the govt stops cutting taxes and begins to increase them, it has to cut programs in order to service the debt.)

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I understand and sympathize with some poor schmuck who is trying to make a few bucks making deliveries for Amazon or one of the food delivery services. That's why I rarely use either. But I have zip, zero, nadda concern about people whining because it's costing them more to run their SUV, jacked-up pick-up truck, or, Winnebago. These are people who have heard and read about the risk we are all running of heading into a runaway climate catastrophe, who have enough disposable income to choose unnecessarily expensive vehicles, and, yet still choose to buy stupidly wasteful ones. These people made their choices, which suggest they were indifferent to the impact of those choices on other people, and, are now paying the price for their insensitive, crass decisions. Karma's a bitch---learn from it.    

What I find despicable (yup that's the right word) is that the Conservatives have decided that in the face of the real problems that poor people (ie: the poor slobs driving worn-out cars to deliver Uber Eats because they can't get a better gig) are having, they didn't come up with a targeted program to help these genuinely distressed people. Instead, they just threw away badly needed government revenue because of the symbolic effect it will have on the middle and upper income members of the province. I say symbolic, because it is so small that it will have pretty much no positive impact on any of them.

That's what happens when you elect a combination of people who make their decisions either on the basis of ideologically-based ignorance or opportunistic politics. Could someone tell me why there are so many people in this province who support these boobs?

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Furthermore I say unto you, the Climate Emergency must be dealt with!