Tax cuts not the only way to help Canadians as gas prices rise: economists

OTTAWA — The federal Conservatives are calling on Ottawa to return some of the revenue from higher gasoline prices to give Canadians a break at the pumps -- but some economists say cutting gas taxes isn’t the only way to deliver relief.

Prime Minister Mark Carney said Tuesday the federal government is looking at ways to support Canadians as oil prices rise due to the ongoing war in the Middle East.

Oil prices have surged since the U.S. and Israel attacked Iran on Feb. 28. The Canadian Automobile Association gas price tracker said on Wednesday prices across Canada averaged more than $1.82 per litre, up from about $1.32 a year ago and $1.52 on March 7.

Conservative Leader Pierre Poilievre wrote a letter to Carney on Tuesday calling on the Liberals to suspend the federal fuel excise tax and the GST on gas and diesel, and to permanently eliminate the clean fuel standard and industrial carbon tax.

He estimates those measures would save the average family of four $1,200 between now and the end of the year.

“This would not only help drivers,” Poilievre said. “Lower diesel prices would reduce the cost of shipping food, homebuilding materials and other essential goods across the country, lowering costs throughout the economy.”

Poilievre said rising oil prices have been a “massive windfall” for the government, citing an estimate that for every $10 increase in the global price of a barrel of oil, the federal government gets an annual boost of $2 billion in tax revenues. He said the Liberals should give back $5 billion of the projected $9 billion in increased revenue to pay for his proposed gas tax relief for Canadians.

Olivier Gervais, director of forecasting and modelling at Scotiabank, said he thinks those estimates for additional annual revenue are accurate.

Higher gasoline and diesel prices flow through to federal coffers both directly via taxes on gas and through higher transportation costs on other goods in the economy, Gervais said. High prices -- and the war in the Middle East itself -- can meanwhile push consumers to rein in spending as financial conditions tighten, which can offset the overall lift in revenues.

“Overall, we can think of higher gasoline prices in general leading to higher federal revenues. The quantity will depend, of course, how long that conflict lasts and how long the price remains elevated,” Gervais said.

Desjardins deputy chief economist Randall Bartlett said the lift from higher oil prices isn’t uniform across the country -- oil-producing provinces in particular see benefits from rising prices -- but he agreed rising gas prices do typically net out to a boost in federal revenues.

Bartlett said cutting federal taxes on gasoline would deliver relief to a large number of Canadians. He also suggested targeted relief through programs like the existing GST benefit could help low-income Canadians who are struggling the most with rising costs.

Bartlett said the federal government could also explore imposing price caps in the energy sector, a practice being deployed in some Asian countries. He cautioned against that approach because it can cause economic “distortions” that result in shortages as consumers rush to buy and companies see no incentive to produce.

“At the end of the day, if government wants to improve the affordability of anything, the way you can do that is by either reducing the price of it or increasing people’s incomes to be able to afford something at the higher price,” Bartlett said.

The Liberals earlier this year announced a plan to top up the GST benefit for Canadians with low and modest incomes through a one-time payment this spring and a temporary increase in quarterly payments over the next five years.

An eligible family of four is able to receive up to $533 through the one-time payment expected to land in June, with quarterly payments of the GST benefit increasing 25 per cent starting in July.

Gervais said cutting taxes at the fuel pumps would be the most direct way for the federal government to deliver relief from gas prices. He said mechanisms like the GST benefit would also help consumers vulnerable to higher prices at the pumps and at the grocery store.

“They could take the extra money they’re getting from higher oil prices and redistribute that. That would be another lever that would be relatively easy to use,” he said.

Prices for Brent crude, the international standard, tumbled 13.3 per cent to less than US$95 a barrel on Wednesday after U.S. President Donald Trump announced a two-week ceasefire in the Middle East conflict late Tuesday.

The volatility of the war and uncertainty over how long the conflict will last presents a conundrum for governments weighing how to support consumers through the crisis.

Gervais said policy-makers can’t be too forward-looking right now. One strategy he said they could employ is indexing any benefits to gas prices, so that the degree of stimulus rises and falls with pressure in global energy markets.

Bartlett said the federal government is likely in the best position to respond to the current oil price spike, as the spring budget season has so far left many provinces with bloated deficits.

Bartlett argued against permanent tax cuts in the face of Iran war volatility, and said any response from federal or provincial governments should be “tempered” and “temporary” to avoid further erosion of their fiscal standing.

“This is a crisis that, as we’ve seen, could be resolved in the near future,” he said.

“Ultimately, while we think prices will stay elevated for a prolonged period, they will gradually start to come down. So certainly permanent tax cuts to support this probably aren’t warranted given the fiscal situation that all levels of government find themselves in Canada.”

This report by The Canadian Press was first published April 8, 2026.

Craig Lord, The Canadian Press