How Much Will the Ontario Economy Save With Cheaper Gas?

I've blogged in the past about how much Ontario pays for gasoline. Ontario produces very little oil itself, so almost all gasoline is imported.  Obviously with oil prices cratering, the amount Ontario overall pays for gasoline will go drastically down.

This Bloomberg article says that Canadian drivers will save $30 per week (around $1500 per year). That seems high to me. Assuming 5,000,000 million drivers in Ontario that means $7..5 billion is being saved (and that's in after tax dollars) per year with the cheaper prices.

A lot is being saved in any case. Ontario will lose out on some taxes as their 8% portion of the HST will decline with cheaper gas. However this money could well be spent on other items that HST is charged on so it is probably a wash for the government. Likely anyone selling goods and services that are purchased with disposable income are going to have more sales. Or Ontarians will put it towards debt reduction (which I doubt).

One issue for Ontario is that the banks headquartered here aren't likely to do well with lower oil prices and that means lower corporate income tax for Ontario, where corporate tax receipts have already been under expectations recently. The stock market is also crashing, with the TSX not much up year to date. That means less in taxes for capital gains. I'm not sure whether the big savings in gas counteracts these effects for the Ontario economy, although the lower dollar has to help exports and hurt imports (including tourism dollars spent in the US).

Do Differing Provincial Sales Taxes Affect Where Canadians Buy Things?

With varying combined federal and provincial sales taxes (i.e. the HST in a lot of provinces, BC's abomination) there are major differences between most provinces and Alberta. Alberta famously has no provincial component and thus their sales tax is the 5% federal component. Ontario's total is 13% with the 5% federal component.

Now 8% isn't a massive difference for the end consumer, but it isn't insignificant either. Canada is also a massive country, so it isn't physically easy for an Ontarian to travel to Alberta to save. As far as I know for internet sales, it isn't easy to fake being from Alberta if you're an Ontarian.

So I'm wondering if Alberta has more retail sales than would ordinarily warrant if sales taxes were the same in all provinces? New Hampshire has no sales taxes and makes significant sales to other states, however the New England states are small in area so it isn't a big deal to travel from Massachusetts. Albertans have higher incomes than other Canadians while also having lower provincial taxes. So if retail sales are higher for Alberta as a whole, it isn't easy to tease out if there's any additional purchases by non-Albertans.

Now what there might be is those living part-time in Alberta working in the petroleum industry who travel back and forth between the Maritime provinces make a lot purchases of goods and take them back whenever they go back East. Nominally they might be residents of Alberta, however they could be taking additional stuff back to family members and friends that would normally be purchased in the Maritimes. Again it would probably be hard to tease that out (although maybe some economist has tried).

Anyways, whatever small effect there was is part of a larger effect where Alberta has both lower provincial sales and income taxes. Nova Scotia is a province that seems to be in a death spiral of high income and sales taxes required to pay for an overlarge and relatively over paid public sector workforce. Ontario seems to be going down this road as well, with significantly increased income taxes since Dalton McGuinty was elected, with recent additional taxes at the highest income levels. If Alberta didn't exist, this would still be problematic, but with the existence of Alberta and the option for any Canadian to move there and especially large incentives for those making the most income expect more people to move from Ontario to Alberta. 

West Texas Oil Price Over $106, What Does That Mean For Ontario?

Today, mostly due to rebellion in Iraq, the price per barrel of West Texas crude went over $106 and Brent went over $112. What's that mean for Ontario?

Obviously it isn't good. Ontario pretty much imports all its oil and gasoline (there's a bit of production in Southwest Ontario, but that's not material). Gasoline prices per litre have been high already lately anyways and this doesn't help. Ontario is a car based culture, except for downtown Toronto, so any increases in gas prices are going to come from an already burdened consumer. That money has to come from somewhere and it is going to come from disposable income.

Ontario's manufacturing industry has already been decimated and isn't bringing in the export income it used too. Every extra dollar spent on gasoline contributes to Ontario's trade deficit and that's going to hurt GDP in the second quarter. I've already been predicting that due to the US first quarter's GDP contraction, Ontario's is going to be poor and possibly negative. The US second quarter GDP has been predicted to bounce back strongly and should help Ontario's second quarter GDP, however high gasoline prices will have an impact. We'll see.

One aspect of higher gasoline prices is that HST is now charged, so the Ontario government gets 8% of retail gas prices, which raises with increased prices unlike the excise tax. Gasoline consumption is somewhat inelastic so higher prices shouldn't change consumption that much in the short term so there should be more HST revenues. I really need to look up total gasoline consumption in Ontario to see just how much HST revenue there is.

Gasoline consumption is somewhat inelastic, however high gas prices long term is going to drive down miles driven. I've seen statistics for miles driven overall in the US per year, I'd love to see it for Ontario.

Ontario Energy Board Raises Electricity Prices, November 1st 2013

More higher cost electricity for Ontarians. The Ontario Energy Board has announced price hikes for consumers and small businesses starting November 1st, 2013. All times are going up 0.5 cents per kilowatt hour. Peak prices will now be 12.9 cents (weekdays 7 am to 11 am and 5pm to 7 pm), mid-peak will be 10.9 cents (weekdays 11 am to 5 pm) and off-peak 7.2 cents all other times (including all day forweekday holidays). That's a large 7.46% increase for off-peak, compared to September's inflation rate for Canada of 1.1%. Also note that these prices will all have the full 13% HST applied to them.

I'm not sure what the demarcation is between small and large businesses, but obviously for small businesses, high electricity costs compared to neighbouring jurisdictions is a competitive disadvantage.

Note the PDF of the release is here.

Hamilton and the Potential GHTA HST Hike, Some Numbers

There is certainly a possibility that Ontario could raise the HST by one percentage point from 8% to 9% (provincial portion) in the GTHA to pay for Metrolinx's new transit infrastructure. Whether that actually happens is a question, as federal Minister of Finance Joe Flaherty has apparently come out against regional variations in the HST. The province could raise the rate for the entire province.

But that's for another discussion. I'm more interested in how much a HST raise would raise for Hamilton. This Star article has some info on the relationship between HST revenue in the province, along with Flaherty's complaints. Here's the data we are interested in:

"One of four proposed transit taxes, a higher HST would raise $1.4 billion in the Toronto region but would net out at $1.3 billion after a mobility tax credit is applied to assist low-income residents.

It would generate $1.7 billion in the rest of the province. Both Wynne and Metrolinx officials have said that money could pay for local infrastructure priorities in those other areas if the 1 per cent were applied Ontario-wide."

That's $3 billion per year for the entire province for the extra percentage point. Hamilton's population is 520,000, versus a total population of 13,505,900 for the province. By simple division, that's $115.5 million per year for Hamilton available for transit. The East West LRT has estimated capital costs of $800 million. If all the extra money was directed towards the LRT, that would take 6.9 years of the HST revenue. Considering we've been talking about LRT for over five years now, that's a pretty short timeline.

Of course there are other projects, namely the GO train station at James North (and maybe one in Stoney Creek). But the cost of this project (apart from the stations) doesn't totally benefit Hamilton (extending the line to Niagara at the same time surely benefits that region, plus Toronto, Mississauga, Oakville and Burlington to a lesser extent), and the required capital costs beyond the stations aren't that much, some track and a few extra trains. Plus the project is already going ahead and funded (I assume).

So if this HST hike actually happens (and there are a lot of road blocks) and Hamilton gets its share of the hike, then paying for the LRT capital costs can be done in fairly short order. Council unlikely likes the idea of the HST rise, but if it is imposed upon them then the money for LRT should be available (providing the province doesn't funnel it disproportionately into the CIty of Toronto, which is a possibility, which council needs to fight against).

Ontario's $16 Billion Deficit, Would Raising HST Help?

With the election one day away and all parties not really saying a lot on how to get rid of the estimated $16 billion deficit Ontario (for the current fiscal year), taxpayers don't really have a good idea how big it is. As an exercise, I thought I would look at how high the HST would have to be raised to get an extra $16 billion.

Looking at the GST wiki, there's an estimate that the federal government lost $6 billion in revenue for lowering the GST by 2%, so that's approximately $3 billion per percentage point for the entire country (those were 2008 numbers, but we will work with them). Given that Ontario's percentage of the population is 38.1% (13.2 million out of 34.6 million), we will make another estimate that a percentage of HST is worth around $1.14 billion (some things don't have provincial tax on them, do Ontario residient pay more than the average Canadian for GST?). So to close the $16 billion deficit would require raising the HST by approximately 14%, taking the rate to an astronomical 27% from the current 13%. That's nasty and let's be honest, raising the HST to 27% wouldn't actually result in that much more revenue. The economy would tank, people would buy goods outside Ontario, black markets would take off, etc. Raising the HST to 15% to take back the 2% the feds lowered the GST would help, but wouldn't come close to getting rid of the deficit.

That's how big a problem the Ontario deficit is. Raising taxes to cover it won't be easy at all. Unless people enjoy paying sales tax of 27%.

How Much Extra Money is Ontario Getting from the HST Taxes on Gasoline

One aspect of the recent implementation of the HST is the extra 8% tax levied on gasoline in Ontario (compared to the 5% from GST previously). One nice thing about the HST on gasoline is that it keeps rising with inflation. If the base price of gasoline goes up, so do the revenues from the HST with no need for a messy legislated rise in taxes. The other excise taxes don't have this property and haven't changed much recently (the provincial fuel tax is 14.7 cents per litre and the federal excise tax is 10 cents per litre).

I'm going to make a real half-assed guess as to how much extra income the Ontario government gets from the HST on gasoline. I'll say the average Ontarian pays $500 a year on gasoline (that's average over everyone, not everyone who has a car and this I think is a conservative estimate). That's $37.04 in extra HST taxes in Ontario per person. Looking at wikipedia, there's an estimate of Ontario's population as 13,210,667 people, which works out to $489323105.68 or close to half a billion dollars per year. That's pretty sizeable and begs the question as to whether the HST was as revenue neutral as the provincial government claimed it was.

The $500 number is just an educated guess. If I can get a number on the amount of gasoline sold in Canada or Ontario, I can make a better estimate, although it will fluctuate pretty wildly with the price per litre. In any case, I think it's an interesting number and I never really saw it reported much in the press, which is a little surprising, considering it isn't particularly hard to break out.