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Raising taxes is generally not a way for our political decision-makers to become popular.
This is even more true if these taxes affect a broad base of taxpayers. This is particularly true of fuel taxes in places where per capita consumption is high, as is the case in Quebec and elsewhere in Canada. But even if raising these taxes is difficult, it is nonetheless a rational and coherent policy choice.
In the Canadian provinces, the introduction of fuel taxes started at the beginning of the last century with the arrival of motor vehicles. The introduction of these taxes was justified in part by the cost of road maintenance to the provinces. However, these taxes and the federal excise tax on gasoline and diesel are calculated on volume with no provision for indexation. As a result, their levels have been raised from time to time over the years to enable them to play the role they were intended to play when they were introduced.
Still, the federal tax rate has remained unchanged since 1995. In Ontario, too, the last rate increase was nearly 30 years ago. In British Columbia, the tax rate was revised some 20 years ago, and about ten years ago in Quebec and Alberta, as Table 1 shows.
Meanwhile, the cost of maintaining the public infrastructure needed to support the use of cars and trucks has continued to rise.
The passage of time reduces both the effects of a volume tax on participants in the economy – including households – and the real value of the........