The New Carbon Tax Will Have Your Car Budget Running on Empty

On October 3, 2016, our Prime Minister set a firm target in the war against green house gases.  He announced that he is giving the provinces until 2018 to set a minimum price on carbon emissions.  The targets are set at a minimum of $10 per tonne in 2018 rising to $50 per tonne in 2022.  Given the new policy to tax the use of fossil fuels, the cost of operating a gasoline vehicle is set to rise. For the many Canadians struggling with debt problems this cost could be a significant change. 

Maclean’s recently ran an article that was critical of the Canadian Tax Federation’s calculations of the cost of the new carbon tax on the average Canadian household.   The Federation pegs the annual cost of the tax at roughly $2,500 per year.  The analysis by Maclean’s concludes a dramatically lower direct cost of $600 per household.  Narrowing the tax to vehicle costs, Maclean’s estimates that the average household will be on the hook for an extra $224 in gasoline expenses.

I once read an excellent little book with the title, How to Lie with Statistics.  I will never forget that people often turn off their brains when an expert pulls out a set of statistics.  With that in mind, I set about a few simple calculations to find out what the new proposed carbon tax would cost our household.  I was amazed at the result. 

Assuming a rise in the cost of gasoline from $1.00 per litre to $1.30, my household will be paying $1,770 extra each year.  That is dramatically higher than the $224 estimate from Maclean’s. 

We are a family of three that includes three vehicles.  We have ailing parents living in far off cities requiring regular trips every month.  We average a total of 65,000 kilometres for all three vehicles each year.  At the mileage rate calculated for each vehicle, I estimate we use a total of 5,900 litres of gasoline per year. 

Maclean’s estimates the average household fuel use at 2,000 litres (which is low if you have children in soccer clubs or do any significant commuting).  Maclean’s estimates the cost of a $50 per tonne tax at about 11.2 cents per litre of fuel.  For our household, that would be about $660 annually in costs.  However, British Columbia already has a carbon tax at $30 per tonne.  A litre of gasoline in Vancouver is about $1.30 versus $1.00 in Ontario at the moment.  Assuming a rise in the cost of gasoline from $1.00 per litre to $1.30, my household will be paying $1,770 extra each year.  That is dramatically higher than the $224 estimate from Maclean’s. 

In order to prepare for the coming carbon tax on gasoline, here are some tips to keep your budget running smoothly.

1. Avoid purchases of new trucks and SUVs.  Canadians are buying these vehicles at a fast pace.  While the oil price is at historic lows, it will not stay low for long.  Operating costs for large vehicles are going to rise sharply. 

2. Experts say we are on the cusp of dramatic technological change in the automotive sector.  Save now for your next vehicle.  In several years, you will find savings from new technology.

3. Make lifestyle changes to reduce your car use.  Try to live close to where you work, shop, and play. If you need assistance contact our credit counsellors for help. 

In Ontario, we have to look no farther than our Hydro bills to see that government policy can have a dramatic effect on our cost of living.  The Federal Government’s directive to the provinces is progressive and necessary to address the threat of climate change.  However, the cost of operating a gasoline vehicle is set to rise dramatically.  Canadian families need to plan accordingly.