Controls were intended to ease consumer anger over rare but large price fluctuations. But government isn’t meant to be an anger management therapist
By Marco Navarro-Genie
Atlantic Institute for Market Studies
Gasoline price controls are a major burden for the minor benefit of having less mercurial cost fluctuations.
Government policies are often contradictory. This isn’t directly the result of conspiracy or ill intent. Governments are no different than individuals. We all embrace beliefs that sometimes contradict others we hold.
To eliminate these contradictions, Atlantic Canadian governments should update and streamline ineffective legislation to reflect our more economically open societies. That would also send a signal that we’re friendlier to business and investors.
A good place to start is government-controlled gasoline pricing, which costs consumers millions of dollars. The regulatory system, in place since the last decade, needlessly manipulates market prices.
The latest study by the Atlantic Institute for Market Studies found consumers in Nova Scotia pay up to 2.5 cents a litre extra because of regulation. In the other Atlantic provinces, the amounts are smaller and residents in some communities may pay slightly less, but there is a significant overall burden, totalling upward of $200 million.
The study estimated gasoline consumers have paid in excess $36 million in Nova Scotia since 2006; $15 million in New Brunswick since 2006; $63 million in Newfoundland and Labrador since 2001; and $91 million in Prince Edward Island since 1991.
Gasoline price control was largely instituted to deal with consumer anger over rare but large price fluctuations. But government isn’t meant to be a collective anger management therapist.
The other stated goal of stabilizing rural markets is well worth considering, if only to recognize that it has failed. People from small communities still travel to bigger communities to get cheaper gasoline. For example, consumers can find up to a 12-cent differential in Newfoundland, where no price floor exists.
While it may seem like only a few cents here and there, regulation adds an extra cost to an already overtaxed commodity. This is to say nothing of the $200 million that consumers could have spent elsewhere.
A litre of gasoline in Atlantic Canada is already heavily taxed, at an average of 26 per cent. Gasoline gets hit by two pairs of taxes each at the provincial and federal level worth 24 cents a litre. Then combined federal and provincial sales tax (HST) adds 15 per cent. Once we account for the extra cost of the price-rigging regulation and income tax, for every $1 of price-regulated fuel one puts into a vehicle in Atlantic Canada, 55 cents goes to the provincial or federal government.
Price controls simply don’t belong in freer markets.
And increased fuel costs hurt low-income members of society. For example, pursuing such policies imposes greater costs on hard-working single parents or the elderly, who are often on fixed income.
Atlantic governments that claim to want to attract new business send the wrong signal with these policies. Gas regulation and other anti-market and market-distorting policies turn investors and business owners away from our region.
Gasoline price-control doesn’t exist anywhere else in Canada, except for Quebec, which hardly is a economic model for our region.
Atlantic Canada needs to favour policies that develop greater entrepreneurship. That means relying on free-market devices when feasible. The four provinces should abolish gasoline price regulation.
Marco Navarro-Genie is the president and CEO of the Atlantic Institute for Market Studies (AIMS.ca).