Significant fuel tax jump coming to province, but not its neighbours

A decades-long effort by New Brunswick governments to keep gasoline prices in line with neighbouring provinces and within sight of prices in Maine will begin to fall apart next week — possibly for good — when significant carbon tax increases, mandated by Ottawa, hit the region in very different ways.

On Monday, gasoline taxes in New Brunswick are set to jump 4.42 cents per litre, plus HST, compared to just 0.94 cents in Nova Scotia and no increase in Quebec and Maine. It's an unprecedented shift in relative pricing among jurisdictions in the region and it's to New Brunswick's distinct disadvantage.

Gasoline prices in Prince Edward Island will also jump 4.42 cents next week, but the province cut its own gas tax 3.4 cents in January to prepare for the change. 

Carol Montreuil with the Canadian Fuels Association says the $3-billion-per-year regional gasoline market in and around New Brunswick has been in a certain balance among players for so many years, it's hard to predict how a significant cost increase in New Brunswick alone will affect consumer behaviour — but a response of some kind is likely.  

"Up to now they [regional markets] have been following each other fairly consistently, and if a discrepancy appears it will have an unintended consequence and drive a change in behaviour," said Montreuil.

"People at the end of the day will talk with the wallet."

People talking with their wallet is something all sides agree will happen.

Carbon taxes are meant to trigger changes in consumers' financial decisions and behaviour, and both supporters and opponents of the new tax expect real consequences to flow from increased fuel prices.

The worry in New Brunswick's case is that a large price increase that is not matched by neighbours could encourage consumers to shift purchases to cheaper locations — not just reduce consumption.

"It is an unintended risk," said Montreuil.

Taxes are jumping more in New Brunswick than elsewhere because it is the only province east of Ontario not to develop a carbon pricing and greenhouse gas reduction plan acceptable to Ottawa. It will, as a consequence, have a default set of federal fuel taxes imposed.

Provinces with approved plans have been allowed to keep fuel tax increases to a minimum — one cent or below if they choose — an option now closed to New Brunswick for this year.

New Brunswick residents are being issued cheques by the federal government to rebate what the new taxes will cost — something consumers in other provinces are not getting —  but the tax changes will still reorder regional fuel markets in a way that promises to leave New Brunswick as an island of high prices.

That's not an insignificant development, according to Jean-Marc Picard of the Atlantic Trucking Association.

"(New Brunswick) consumers are going to get that rebate cheque and be happy for five minutes but at the end of the day it's not nearly going to cover the impact," said Picard, who believes New Brunswick's gasoline markets are most at risk of losing business to other jurisdictions.

For trucking companies, diesel taxes are already 6.1 cents per litre higher in New Brunswick than in Nova Scotia, a difference that will stretch to 10 cents on Monday.   

But Picard says New Brunswick is protected somewhat by international agreements that require trucking companies to remit diesel taxes to provinces based on distances driven in each province no matter where they fill up.  

No similar protections are in place for gasoline markets.

"Consumers are going to end up paying more for the gasoline in their cars," Picard said. "Those are the ones who will get hit. If they fuel in New Brunswick, they're going to feel the pinch."

New Brunswick collects $282 million a year in fuel taxes and has paid special attention to tax rates and prices as a matter of provincial economic policy since at least 1992. That's when the Liberal government of Frank McKenna cut gas taxes by two cents to try to combat much cheaper prices in Maine.

The Maine problem has largely faded since then, with a low Canadian dollar and tighter border security making the trip less convenient.  

Last year, 1.9 million people crossed from New Brunswick into the state by car and returned the same day — the lowest number recorded since record-keeping began in 1982 and a fraction of the 9.9 million people who crossed back and forth in 1992.

But gas prices in Maine still average 22 cents per litre less than New Brunswick. As that gap grows wider on Monday, there are more than two dozen gasoline stations in the state hugging the New Brunswick border waiting to greet New Brunswick customers and a risk more people will view the trip as worthwhile.

Less dramatic but similar threats wait at New Brunswick's border with Nova Scotia and across the fixed link to P.E.I., where traditionally lower prices in New Brunswick will suddenly be permanently higher.

And that's only the beginning.

Another 6.6 cents in federally required carbon tax increases on gasoline are scheduled for New Brunswick by 2022, undoing years of effort by provincial governments to keep prices competitive with neighbours.

Montreuil says the precise consequences of that are uncertain but a loss of business to cheaper neighbouring jurisdictions is likely.

"When you're in the region of one or two pennies, it is difficult to track a change in behaviour," he said. "But when you get in the eight, 10, 12, 15 cents a litre type of discrepancy … this will definitely drive [customers'] behaviour."