Fuel tax pause to cut gas prices, ease inflation pressure: Economist

Relief at the pump is coming, but don’t expect prices to return to the same levels they were at before the U.S. waged war on Iran.

The federal government is set to pause its fuel excise tax starting April 20 and lasting through Labour Day – a move aimed at easing pressure on drivers during the busy summer travel season.

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Jason Childs, professor of economics at the University of Regina, said the change will bring prices down, just not as much as some might expect.

“It’s going to mean a little bit of savings at the pump,” Childs said. “It’s going to take about 10 cents a litre off, but we’ll probably see prices come down seven or eight cents a litre.”

Childs explained that tax cuts don’t always translate directly into full consumer savings, as costs are often shared between producers and buyers. Even so, he said the move should provide some short-term relief as fuel prices remain elevated, in part due to global instability and energy market pressures.

While drivers may notice a difference at the pump, Childs said the broader impact on the cost of living will be more subtle.

“It won’t help with the price level,” he said when speaking on the cost of living. “It’ll help with the rate of increase, so it’ll slow down that inflationary pressure.”

That means Canadians shouldn’t expect grocery or other prices to drop as a result of the tax break. Instead, the increase in those costs may slow.

Childs said the police could still play a role in easing overall inflation, even if it doesn’t reverse it.

“It won’t completely take all the pressure off,” he said, “but it will take some of the inflationary pressure out of these oil price increases.”

The temporary tax break also comes with some trade-offs. Childs noted that the federal government will forgo revenue that would otherwise help offset the national deficit.

“It’s going to make the deficit worse than it otherwise would,” he said. “But the money ultimately is going to come from taxpayers, so if we’re paying less now, we’ll be paying more later.”

The measure is set to remain in place until Labour Day, offering Canadians several months of modest relief, though Childs cautioned it’s not a long-term solution to high fuel prices or affordability concerns