By Ian Munro
Premier Robert Ghiz has fulfilled one of his key campaign pledges by implementing a 4.4 cent reduction in the provincial tax on gasoline.
Seeing a politician follow through on a promise to voters is always a welcome sight, so the new Premier deserves a pat on the back on this point.
Any reduction in taxes is also something for which a government generally deserves praise. As international oil prices have shot up in recent years, Islanders, like everyone else, have felt the pinch at the pump and they will welcome relief from that pain by having a bit of money put back into their pockets. The savings will not be huge for most consumers: if you fill up your car with a 50 litre tank once a week, the tax reduction will save you only $114 over the course of a year. Nonetheless, having an extra hundred bucks in your pocket is better than a poke in the eye with a sharp stick, as they say.
If the new government is really serious about promoting the interests of Island consumers, though, it should move beyond the 4.4 cent aspirin and conduct major surgery by repealing gasoline price regulation.
Simply put, gasoline regulation is not effective in lowering costs to consumers. Gasoline price regulation was re-introduced to Nova Scotia last July and the subject received considerable debate and scrutiny in the preceding months.
During that period, a slew of economists and market analysts stated that regulation would not reduce prices. The Nova Scotia government itself readily admitted that regulation would not reduce prices. It even went so far as to tell everyone that the price of gas would likely go up with regulation. More recently, an independent consultant hired to review the first seven months under price regulation was not even mandated to address the question of whether regulation had saved consumers money because everyone knew the answer already: regulated pricing ends up taking more out your wallet, not less.
Allegedly, consumers would be better off because prices would be more stable, even if the trade-off was a higher total bill at the end of the year. Call me crazy, but I’ll gladly pay $1 today and $4 tomorrow rather than $3 on both days. When prices move a lot that means businesses are aggressively competing with one another to deliver value and service to consumers.
On the Island, infrequent price adjustments may create greater “stability” than in Nova Scotia, but this puts serious pressure on gas stations, especially smaller ones, and one industry representative was quoted in May as saying that station closures would result. These station closures in smaller communities are costly to consumers as they now must drive further to fill up the tank.
A potential remedy is to make the price adjustments more frequent, but then there goes the price stability. And no matter which regulatory choice is made on timing, consumers end up paying more than if prices were set in the marketplace.
Let’s summarize: price regulation costs you more money, jeopardizes the viability of smaller gas stations, and reduces convenience and non-price competition. So why again are we doing this?
Mr. Ghiz, it’s time to put away the aspirin bottle and call for the scalpel.
Ian Munro is Director of Research with the Atlantic Institute for Market Studies, an independent Halifax-based public policy think-tank.