Why Canada’s Gas Tax Suspension Is Both a Political Masterstroke and a Dangerous Economic Precedent

When you get to a gas station, there’s a certain kind of relief that vanishes almost instantly. When you pull in, you see that the pump’s numbers are slightly lower than they were yesterday, and by the time you’ve finished filling up, you’ve already mentally spent the money on a cup of coffee. That is essentially the political reasoning behind Canada’s suspension of the gas tax. It is tiny enough to be hardly noticeable in a single transaction, but it is significant enough to give the impression that the government has taken action when added up over the course of a whole nation and a news cycle.

The numbers don’t really support it as a policy. Reports from all over the nation were used by BNN Bloomberg to characterize the impact at the pumps as “marginal,” a term that governments detest when it comes to their flagship policies. When retailers absorbed the difference into their own margins, drivers in Toronto and Calgary saw a few cents shaved off, sometimes less, and sometimes nothing at all. Crude had already risen above levels that no domestic excise pause could significantly counteract due to the Iranian conflict. Nevertheless, the political reasoning is still valid as we watch this develop. Relief is not measured in cents per liter. Whether or not anyone in Ottawa seemed to be paying attention is how they gauge it.

The masterstroke part is that. Former central banker Mark Carney, who entered office with a reputation for being almost suspiciously calm, understood something that career politicians occasionally overlook. The act of doing something visible during a time of public anxiety frequently matters more than the analytical value of the action taken. It makes sense to suspend the gas tax. At a Petro-Canada station, it fits on a sign. It doesn’t need to explain what a windfall tax is, what a price cap is, or why the loonie acts the way it does when oil moves. It’s the equivalent of raising the thermostat by two degrees during a heating bill dispute.

What follows is the danger. There is a peculiar tendency for tax holidays to turn into tax expectations. Last week, The Washington Post presented a similar argument regarding the American push to halt state gas taxes during the same price spike caused by Iran. It fairly noted that stopping the tax during a supply shock effectively subsidizes demand at the worst possible time. Wes Moore of Maryland declined to proceed because, to put it bluntly, it would “blow a $100 million hole” in the state’s transportation budget. Ron DeSantis of Florida, relieved of the pressure to win reelection, stated out loud that there is no easy solution. Seldom does the truth fit on a bumper sticker.

Although Canada’s federal gasoline excise is not very large, the money it brings in covers issues that arise later, such as unfilled potholes, uninspected bridges, and transit projects that are postponed until a later fiscal year. Until it isn’t, the damage is undetectable. Even though they disagreed on nearly everything else, there is a reason why fiscal conservatives have historically detested this type of measure as much as climate economists. Both could see how difficult it is to undo a temporary cut once it has been granted. Voters remember the price they were accustomed to.

In addition, Carney inherited the carbon issue rather than making a decision. Canada debated whether pricing fuel was a regressive burden or a moral necessity for the better part of ten years. Even a brief suspension of the gas tax sends a more subdued signal in the opposite direction, and it is difficult to ignore the fact that the suspension occurs at a time when the entire framework of Canadian climate pricing already appears more precarious than it did two years ago. That might be unfair. Perhaps the suspension will actually end once the Iranian crisis is resolved. However, pump prices have a tendency to turn into political weather on their own, and governments seldom walk these things back cleanly.

The fact that both interpretations are accurate at the same time makes the situation truly fascinating rather than merely annoying. It’s good politics. It’s dubious economics. It establishes a precedent that upcoming finance ministers will covertly curse and soothes a public that needed soothing. Carney seems to be aware of this, which may be why the announcement had the slightly dejected tone of a man taking the necessary rather than the best course of action. Usually under a different minister’s name, the bill for that distinction comes later.