Gas tax holiday rings in mix of hope, skepticism

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This article was published 29/12/2023 (640 days ago), so information in it may no longer be current.

Manitoba gas prices are at their lowest point in nearly two years and are set to drop even further as the provincial government temporarily slams the brakes on its gas tax.

As of Jan. 1, the province’s 14-cent per litre tax on gasoline and diesel for motor vehicles will be paused for six months, as part of the NDP government’s promised gas tax holiday.

Drivers filling up their tanks Friday afternoon at a St. James neighbourhood gas bar welcomed the coming cut to prices.

“It’s going to make life more easy,” said Tony Huynh, an international student at RRC Polytech. “It’s going to help a lot.”

At $1.25/L, Huynh said gas prices aren’t causing too much pain, but he’s optimistic cheaper fuel could eventually mean lower prices at the grocery store, too.

“It’s pretty low compared to prices in the past,” Huynh said of the current price of gasoline. “If it goes lower, it’ll be good.”

According to GasBuddy, an online fuel-price tracking platform, the last time gasoline in Manitoba was around $1.30/L was in late December 2021. Gas prices peaked in July 2022, at just over $2 per litre.

Patrick De Haan, head of petroleum analysis at GasBuddy, said local drivers can expect to see the tax cut reflected at the pump about a week after the change takes effect as gas stations use fuel they have in storage.

“You might start seeing prices decline a penny or two per day, starting on Jan. 1, and it may take until (Jan.) 10 or even the 12th for most stations to have passed, basically, the full decrease along,” De Haan said.

Determining whether the full tax cut is reflected in the price at the pump can be complicated but in other jurisdictions where governments have lowered taxes, consumers see the bulk of the savings, he added.

“In my experience, I have yet to see a situation where gas bars do not pass along the savings,” De Haan said. “But it’s also good to have a healthy dose of skepticism. I have faith that prices will go down, as a result of this tax change.”

The six-month fuel-tax holiday will cost the provincial treasury $164 million in revenue and the government can choose to extend the tax cut until Dec. 31, 2024, through regulation.

Over a six-month period, a two-vehicle household is expected to save $250 in fuel taxes.

“People need a break between gas prices and food prices, and well just all prices, that will be helpful,” said commuter Cynthia Dutton, who was filling up her compact SUV on Friday. “I also know that to cut means we have to make up for the deficit in other areas.

“It’s maybe a temporary thing that’s good so people can feel a relief,” she said. “At the same time, the overall picture really needs to be looked at closely to be able to know where the money is actually coming from and how we can fix the spending overall.”

Tax changes in most markets are shared by both producers and consumers, said University of Manitoba agricultural economics Prof. Chad Lawley.

As a result, the full savings from the tax cut will likely be passed on only if customer demand doesn’t change, he said. “The majority of that tax change is going to go to consumers in the form of lower prices, but I wouldn’t suspect that all of it is going to go through.”

However, De Haan and Lawley said frugal shoppers and competition in the market will also help drive down prices to an average mark-up.

“Stations will employ every strategy they can to get a leg up on their competition and they will use this as a competitive advantage,” De Haan said.

Both also cautioned rising gas prices do not mean the tax break is not being passed on to consumers. Rather, outside pressures may be driving up the wholesale cost of gas but, relative to similar regions, the price in Manitoba should still reflect the tax cut, Lawley said.

As far as helping Manitobans struggling with the cost of living, Lawley said a gas tax holiday is not the best way to target assistance.

“A lot of low-income people would not be using vehicles as much, so it ends up being a bit of a tax break for wealthier individuals who aren’t facing affordability issues in the same way,” Lawley said.

To kick off 2024, the provincial government is also making changes to income taxes.

Manitoba’s bottom two tax brackets will increase to $47,000 and $100,000 (a 28 and 26 per cent increase, respectively) instead of being indexed to inflation this year.

The changes were part of Budget 2023 and put into legislation by the then-Progressive Conservative government. The NDP, which formed a majority government in the Oct. 3 election, committed to maintaining the tax breaks.

“Manitobans faced unprecedented challenges over the last three years, and PCs rose to those challenges by taking historic and meaningful action to make Manitoba a better place to live, work and do business,” Opposition Leader Heather Stefanson said in a release.

The change is estimated to cost the provincial treasury $160 million in the 2024 tax year.

Payroll tax thresholds will also increase for businesses, which is expected to save about 900 employers around $9 million next year.

danielle.dasilva@freepress.mb.ca