Random thought on gas taxes

I have an interesting point on gas taxes – more specifically on the relationship between gas taxes and fuel efficiency.  Gas (for cars) is about 60% more expensive than in Canada (per liter converted to Canadian dollars).  Over a two day period my wife and I drove almost 500 kms @ 120/hour most of the time in a little Volkswagen Polo and it only cost me about $40 CDN total for gas.

I would pay close to $60 to drive 500 kms in my van and even when I rent small cars like a Dodge Caliber – if I drive 120 kms/hour I end up spending more than $40 for 500 kms.

The lesson, I think, is that people can stomach higher per litre costs at the pump if they aren’t paying that much more overall for the cost of fuel.

If you think of this in economic terms, adding 60% to the price of a litre gas of gas (and diesel for vehicles) in New Brunswick would add something like a billion dollars to the revenue generated by the government – it’s about a buck a litre now so add 60 cents per litre in new tax to every litre of gas (and diesel for vehicles) sold in New Brunswick every year.

Our entire Equalization payment is only $1.6 billion per year.

Of course this is a rough example.  If you had much more fuel efficient cars (i.e. everyone drove a Volkswagen Polo) here it would reduce the number of litres used and hence lower that $1 billion in incremental revenue to government.

But the point is still valid and applies more broadly to tax policy in general.  We use tax policy to incentivize a wide variety of public behaviour (i.e. RRSPs, RESPs, to buy sporting equipment, etc.). 

We should consider doing the same for energy objectives.  If the government needs (x) in tax revenue per person each year, it should strategically look at the best mix of tax policy to generate (x) while achieving broader public objectives such as energy efficiency, saving for retirement, upgrading skills, etc.

The average household in New Brunswick pays $10,500 in personal taxes each year and another roughly $7,000 in other taxes such as HST, property tax, etc.   Why would it matter if the distribution of how we paid taxes changed?   If we moved to a high VAT and lowered personal income tax?  Or if we lowered personal income taxes and significantly raised gas taxes?

Food for thought.

1 thought on “Random thought on gas taxes

  1. Depending on whether thats city or highway part of the reason is your van. We bought a Toyota Yaris that gets about that mileage highway, where it lags is the city.
    But the big problem here is that engines in europe use high test diesel. Its better quality gas, and more efficient engines. You can get them here, but you pay a lot more for them. I don’t know about there, but here the increased number of Humvees and Lincoln’s tells me that those with more money aren’t looking at mileage as an issue.
    In NB Graham lowered the gas tax, and I thought it was odd that from what I was reading online he rarely even mentioned the taxes he cut. But that, like the tolls, was something he did mainly for the trucking industry. Given that NB’s rating just dropped again and that means paying more interest, I have a feeling gas tax may go up, unless Alward tries to do the same ‘creative accounting’ that Lord did.

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