Gas tax pause gives bigger break to higher-income households, PBO says

Explainer

Ottawa's gas tax pause is offering a bigger break at the pumps to the households that earn the most largely because they buy more fuel, the parliamentary budget officer says in a new report.

Parliamentary Budget Officer Annette Ryan said in a new report Thursday that the total tax pause will save the average family $276 over the course of the roughly one year it's in place.

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The federal government temporarily suspended the federal excise tax on gasoline, diesel and jet fuel in April.

The pause was supposed to end on Sept. 7, but the government announced last month it would extend that pause into 2027.

How much will different households save?

The PBO estimates that families in the highest income quintile can expect to save an average of $468, while those in the lowest quintile would see just $132 in relief.

Fuel costs often make up a bigger share of lower-income families' total budgets but households that earn more also typically spend more at the pumps.

The budget office expects the total cost of the fuel tax pause will be $4.9 billion, just under the federal government's estimate of $5.3 billion.

How does the tax pause work?

The government has not provided a per-family estimate of tax savings from the program.

Ottawa says the suspension removes roughly 10 cents from a litre of gasoline and four cents from a litre of diesel.

Half the tax rate will be reapplied starting Feb. 1 and the tax will be restored to the full rate on April 1.

The Liberals paused the fuel excise tax to offer Canadians relief from a global energy shock driven by the war in Iran.

John Fragos, spokesperson for Finance Minister François-Philippe Champagne, said the fuel tax pause is a blanket measure that applies evenly to all Canadians based on how much they're driving.

The fuel tax pause is a blanket measure that applies evenly to all Canadians based on how much they're driving.

The PBO noted its estimates assume total savings from the tax break are passed on by producers, but those projections could be affected if corporations retain those savings.

What other affordability measures exist?

The Liberals' other major affordability program, the Canada Groceries and Essentials Benefit, is income-tested and proportionally benefits lower-income households with direct payments, Fragos noted.

The Liberals' other major affordability program, the Canada Groceries and Essentials Benefit, is income-tested and proportionally benefits lower-income households with direct payments.

Fragos also said that the relief on diesel costs can also pass through Canadian supply chains.

Those savings per fuel litre can cut costs for businesses and bring down final prices for consumers on store shelves, he argued.

What was the political reaction?

The federal Conservatives attempted to pass a motion this week to extend the tax break and cut other fees associated with diesel production, but the proposal was voted down by other parties in the House of Commons on Wednesday.

Online commenters on the report questioned its findings.

One commenter said, "A drop in prices is welcomed by all. And since fuel costs make up a larger % of budget for a lower income family, the reduction in price will be more noticed by them and not the wealthier family, not the other way around."

Another wrote, "Well anyone that didn't figure that the more you buy the more you save. But with Carney and this Liberal government you have to be grateful for the pennies you save."

A third commenter stated, "'the total tax pause will save the average family $276 over the course of the roughly one year' THAT is why the UCP giving us $100 each quarter was a better deal than a tax cut. Sadly the UCP changed the $100 rebate to a tax cut."

With files from Global News, Winnipeg Sun and SSBCrack