Monday, November 24, 2008

Good Policies that will never Happen

You can read an argument in favour of an increased gas tax here.

There’s certainly some validity to the argument. We’re teetering on a deficit, yet gas prices are falling (or will be) and there are concerns about deflation. Sure, no politician would ever dare propose such a sound policy but, then again, are the alternatives any more appealing?

6 Comments:

  • I still do not understand why gas tax is such a sensitive issue. As mentioned in the link, gas is only 5% of an average family budget. Yet every time gas prices increase, people complain like it is the end of the world, even among relatively well-off people.

    The logic of a gas tax, which is to internalize the costs of the externalities of burning the gas is very sound and should have the support of all those who claim to be pro environment. But given the experience of the last election, it does not seem as if there are many truly pro environment Canadians. So you are right that it is a "Good policies that will never Happen", or at least not for a while.

    By Blogger Victor Tremblay, at 7:04 PM  

  • Ok. Think about this, and let me know if you change your tune.

    This Conservative is in complete agreement with the idea of a significant gas tax. I am also in agreement with increasing our GST right now - from 5% to 8%.

    Why? Since when do Conservatives agree to a "tax increase"? When the tax increase is a consumption tax.

    Why? Because a consumption tax is much more democratic. It taxes everyone who consumes on an equal level based upon their immediate choices, as opposed to our graduated income tax system where the highest 10% of the income earners pay more than 1/2 of the total tax. As opposed to our graduated tax system which charges you more for using government services less.

    I love consumption tax.. then I pay as much, or as little, as I want.

    You still in?

    By Blogger roblaw, at 9:01 PM  

  • CG,

    I don't think a gas tax would be an effective tool for revenue, and would certainly be politically dangerous. Implement gas taxes like the carbon tax in B.C. can have disastrous results [Liberals trailing NDP by 5 in latest poll].

    Plus the increase of gasoline simply pushes people into public transportation where available, so it might increase transport revenues, but I can't imagine much.

    I actually think higher consumption taxes would be a good idea, but I'm not sure gasoline is the way to go since it targets the lifeblood of the economy. People understood that last election, and it's probably the only reason Harper was reelected.

    I agree with Roblaw. I think the prudent thing to do would be to restore the GST, and add a percentage point.

    By Blogger Raphael Alexander, at 9:34 PM  

  • I would support a gas tax (I like consumption taxes) normally, but not at the present. A recession is a bad time to impose greater costs on businesses and individuals. It would raise prices, but not in a "good" way.

    If you have a deflationary spiral, you want to raise (or keep the same) NOMINAL prices (eg. the dollar cost of doing something), but not real prices. When nominal prices keep going up, people are more likely to spend, rather than save (which you want in a recession). My former Iranian economic minister econ prof had some great stories about how as soon as he got paid he would buy a refrigerator or some other stuff, because he knew it would be more expensive if he waited even a few days.

    However, when you increase the cost of doing business with something like a gas tax, the profits of businesses that transport things drop (oil companies probably do fine), and so they are less likely to hire more workers. Similarly, consumers are not ratcheted towards spending more because they have less in their pockets after paying for gas.

    Moreover, the beneficial inflation (again, we are talking about in a recession, I don't ordinarily like inflation) from a monetary expansion affects people because they expect further increases in prices in the future (thus they buy now instead of waiting for prices to rise more in the future). A gas tax, however, is almost by design a one-time tax increase, which does not affect expectations. The fact that prices went up by 5% instead of 2% this year because of a gas tax does not mean they will continue to rise at such a rate.

    A good test case of this? The 1970's. Through the 70's you had rising prices, not so much because of monetary policy (though surely that aggravated it), but also because soaring oil prices made it more expensive to do business. At the same time those rising prices did not push consumer spending or corporate expansion, even though employment was well below full employment levels.

    That said, I think the taxing and spending levers may become increasingly relevant. The multiplying factor of money seems to be reduced, and interest rates are about as low as they can safely go (once they get too close to zero, you can't really use the monetary lever because you have no room).

    By Blogger hosertohoosier, at 11:27 PM  

  • Victor, if it can be shown that our existing gas taxes don't already cover environmental costs (etc), then your argument is sound.

    Actually, just one more caveat. Canada is a cold and spread-out country with lots of people on low and/or fixed incomes (students, senior, lower income earners) who can't afford to pay more for necessities like heat, energy and transportation. If the revenue generated from increased consumption taxation exceeds the funds that would be needed to assist them with their higher costs, then fine. Although I bet they wouldn't be thrilled with having an even greater dependence on the state than they already do, but whatever. Some people don't mind.

    Personally I think we should find a way to reduce spending. Check out our year-to-year budget. Go back as far as you please, and study both left and right wing governments. Spending keeps going up and up. Spending every last dime when times were good left us in very bad condition to weather this upcoming storm. I say it's about time to see spending go down. My personal spending has gone, how about Canada's?

    By Blogger Robert Vollman, at 10:24 AM  

  • Interesting that the entire article seems based on the premise that fuel taxes only impact private automobiles, and don't impact commercial transportation (e.g. delivery trucks, service vehicles, public transit, taxis, etc).

    Your premise in re-raising the price of gasoline ("... gas prices are falling ...") seems to suggest that you know a "better" price for gasoline than that currently set by the market, and that better price is higher than the current price. Care to share what the basis is for your choice of that Perfect Price for gasoline?

    By Blogger paul.obeda@, at 4:17 PM  

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