By: David Bradley
Consultations on the 2015 federal budget are in full swing. What’s different this time is the Minister of Finance has virtually guaranteed the country will have balanced its books and in all likelihood the government will find itself in a surplus situation for the first time in years. That is a major achievement.
The restoration of fiscal balance does not mean, however, that fiscal prudence should be thrown out the window. Still, the federal government will no longer be in a fiscal straitjacket and with an election coming next year, there will be pressure for all manner of new tax breaks and ideas for spending.
Each year around Canada Day, associations like CTA and organizations and individuals representing people from all walks of life – not to mention the provinces – begin jockeying and competing to be heard on what should be in the budget. It is a rather cumbersome (and political) process, but one CTA takes very seriously. While in recent years strategic leaks of what is in the budget have become commonplace, it isn’t until budget day itself (usually in February) that we know for sure what’s in the document. People (like association staff) spend most of that day and night combing through the budget papers looking for “what’s in it for them.”
The federal excise tax on diesel fuel was first introduced in 1985 (as a temporary measure) by the Mulroney government to raise revenue in order to help slay the government deficit. At the same time the government was in the process of developing Canada’s value-added tax – the GST. The Standing Committee on Finance acknowledged the excise tax on diesel fuel would be inconsistent with the new tax but again there was that darn deficit.
When fiscal balance was finally restored and for several years the government actually posted surpluses, the excise tax stayed although it now served no policy purpose – a fact acknowledged by a federal technical committee on business taxation – and the revenues it generated flowed into the government’s consolidated fund.
The current government is one that prides itself on keeping promises. So, in its pre-budget submission this year, CTA concentrates on the Prime Minister’s 2008 campaign commitment to reduce the federal excise tax on diesel fuel by 50% from 4 cents to two cents. At the time, diesel prices were at record levels, but shortly after the election the economy plunged into the deepest recession in the post-war period forcing the government to introduce aggressive fiscal stimulus which helped to moderate the impact of the recession, but which returned the government’s finances to a deficit situation. The 50% reduction was not acted upon and not talked about again.
Today, the tax generates about $1 billion per year in revenue, with the trucking industry paying the lion’s share. CTA believes it is important for the PM to address the excise tax issue. Diesel prices recently approached record levels again and will no doubt continue on an upward trajectory over time. The government’s finances will no longer be in deficit. From a pure tax policy perspective there is ample good reason to eliminate the excise tax and bring diesel fuel taxation within the GST/HST envelope.
But, there is also another option. While we would never say “no” to a tax reduction, so long as the excise tax continues to exist, the revenue it generates should be dedicated to one or a combination of policy purposes related to the industry that pays the tax.
Specifically, a share of the excise tax revenue could be dedicated to accelerating the penetration of proven and currently available fuel efficiency/GHG-reducing technologies and devices into the marketplace. Funds could also be ear-marked to assist truckers with the capital costs associated with purchasing LNG tractors (which are significantly higher than the prices of conventional diesel tractors) and developing an LNG distribution network. These actions would assist in shielding the supply chain (at least in part at least) from ever-increasing fuel costs and prepare the industry for the next round of heavy truck fuel efficiency standards. It would also help the government meet its own GHG reduction targets.
Revenues from the excise tax could also be used to create a National Highway Trust Fund. Canada is perhaps the only major industrialized country on the planet NOT to have a national highway policy. Federal assistance for highways has been “ad hoc” over the years. You have to go back to 1987-1992 for the last joint federal-provincial effort to establish a national highway program. An agreement on funding could not be reached. In 1994 the feds conceded defeat. In 1997, a federal standing committee said the status quo was unacceptable but stopped short of recommending dedicated taxation once again citing concerns over government deficits. In 2005, the premiers’ Council of the Federation issued a report calling for more predictable, permanent investment program from federal fuel tax revenues. But that didn’t go anywhere either.
CTA also suggests highway trust funds could be used by the federal government to leverage provincial cooperation in harmonizing with national truck standards as opposed to the patchwork quilt that exists today.
Finally, revenues from the excise tax could be used to fund new driver training to an industry standard, which would enhance safety and help reduce the gap between the number of qualified drivers available and the demand for trucking services.
We’ll know in February or March whether any of these ideas will be acted upon.