Economist proposes Robin Hood-style gas tax as Canadian prices surge

Mar 17 2022, 4:58 pm

As gas prices around North America surge, one Canadian economist says it’s time to impose a new tax on the unexpected profits the oil and gas industry is seeing.

Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, wrote an opinion piece for the CCPA’s in-house publication Policy Note suggesting Canadian oil and gas companies should relinquish a portion of their profits to be redistributed to low and medium-income households that are struggling with record prices at the pump.

“It’s not fair that ordinary Canadians are told to sacrifice when shareholders and executives garner massive unearned income,” Lee wrote. “Those windfall industry profits are an example of what economists call an economic rent, which means unearned income by virtue of ownership, as opposed to income that flows from new productive investments in capital equipment or hiring people.”

Canadian Natural Resources reported $7.7 billion net earnings in 2021, and Suncor reported $3.1 billion in profit for 2021, with the final quarter being the most profitable in the company’s history.

And that was before Russia invaded Ukraine.

Canada and the US imposed sanctions on Russia as punishment for the unauthorized military action, including banning the import of Russian oil and gas. Russian crude oil accounted for only 3% of Canada’s total supply in 2019, and Canada didn’t import any from Russia amid the COVID-19 2020 slowdown.

But as countries around the world boycott Russian petroleum products, the price of alternate sources of crude oil and gas has shot up. Canada buys most of its oil from the US (more than 77% of crude imports in 2020), and that country in turn has had to replace the 8% of its imported crude supply that comes from Russia.

“A boycott of Russian oil and gas represents a major shock in the short term though much depends on the supply response from Organization of Petroleum Exporting Countries (OPEC) countries, who expand and contract production based on their own strategic interests,” Lee wrote.

Although Canadian gas companies haven’t posted quarterly results since Russia’s invasion of Ukraine, Lee believes elevated gas prices will result in high profits for them.

On March 4, gas prices in Metro Vancouver surged past the $2-per-litre mark and have stayed high since. Lee is arguing for the additional tax on fuel companies to see revenues flow to households that have born the brunt of record-breaking fuel prices.

Lee pointed to a Democrat proposition in the US as one possible way to administer it — levying a 50% tax on the portion of the barrel price that’s above the 2015 to 2019 average price per barrel.

Alberta has decided to deal with high gas prices another way — by cutting taxes at the pump. Lee argues Alberta can make this tradeoff because oil companies based in the province pay royalties to the government. Outside of Alberta, that strategy won’t work, Lee said.

“In the past, governments have stepped in to prevent profiteering during wartime. Today is no different,” he said. “A windfall profits tax makes sense to ease pain at the pumps while keeping us on a pathway to get off fossil fuels as quickly as possible.”


Megan DevlinMegan Devlin

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