Last week, Ontario Finance Minister Greg Sorbara explained basic economic principles to the unwashed masses. Whenever politicians attempt to explain the how economic principles work, it is never a good sign. and Sorbara, who is often referred to as the "real premier" was no exception.
The Finance Minister was explaining how the portion of the gasoline tax that the province agreed to hand over to the municipalities to be used for public transit will be less than anticipated. No doubt Sorbara said what he said in attempt to minimize the constant whining of Toronto’s mayor and chief panhandler, David Miller. No matter how bad the Grits are, they really don’t deserve Miller’s showing solidarity with the homeless by his constant begging.
Sorbara droned on that as gasoline prices rise people tend to buy less gas and therefore the demand for the product decreases. as less gas is sold, the province collects less gasoline tax and therefore the amount that is available for municipalities decreases.
as with most government pronouncements, Premier Dalton McGuinty had to get into the act and get two of his infamous pennies’ (you won’t pay a penny more in taxes) worth. The Premier said that there was little his government could do about increasing gas prices and added "I’d love to have a magic wand to fix it, but we don’t."
To give Dalton the benefit of the doubt, he was mistaken. For those who are cynical about everything that the Premier says, it was another one of his now infamous lies. The Ontario government can affect the end price of gasoline sold in Ontario. and as to the self serving statements that Greg Sorbara made, they were right--at least as far as they went.
Out of the 85 to 95 that Ontarians are now currently paying for a litre of gasoline, 14.7 is provincial tax. This amount is near the high range of provincial and territorial gas taxes across the country that range from a low of 6.2 cents in the Yukon to 17 cents in Prince Edward Island. But it costs consumers more than 14.7 cents per litre to get that amount of money into provincial government coffers. This is Canada and we even tax taxes. The provincial sales tax (as well as the federal tax) is subject to the 7 per cent GST. So the cost of the provincial gas tax to the consumer in Ontario is approximately 16 cents per litre. The GST should really be renamed the GSTT--the goods, services and taxes tax. So contrary to what Dalton McGuinty says he could, if he had the political will which he doesn’t, lower the cost of gasoline that currently sells at 90 a litre to 74. You can’t expect the province to take off all of the tax, but they could substantially lower the final price of gas. and Dalton might not believe this but he could lower the price even without the magic wand that he seems so desperately to crave. When consumers decide to gas up, they look at the end price, not its component parts.
although Greg Sorbara got his economics 101 lecture right, he stopped short of setting out the flip side. If demand goes down when the price goes up, the reverse is true; when the price of gasoline goes down, demand will go up and more gasoline will be sold. By lowering the gasolilne taxes, more gas would be sold and revenues from the gas tax would increase. But Greg Sorbara doesn’t want to tell you that. His government loves taxes and would be loathe to lower them even if that ultimately led to more taxes being collected. although the lowering of the tax on gasoline would see immediate results because motorists fill their tanks quite often, there is often a lag between supply and demand. and to unimaginative and timid governments, taxes provide a security blanket to their ability to constantly spend money.
The reality is that the current government in Ontario simply doesn’t care about how much money Ontarians pay for a litre of gas. all they care about is their cut of the action and want to get that tax revenue in the easiest way possible. Lowering taxes is considered a crime by these guys.
If Sorbara ever gets the urge to give a lecture on basic economic principles, he should at least have be open enough to say that while tax revenues fall as the price goes up, those same revenues will increase as the price falls.