By Paul Vieira
OTTAWA–Canada said Tuesday it would temporarily reduce fuel taxes as it tries to ease the financial squeeze households face from higher energy prices triggered by conflict in the Middle East.
Canadian Prime Minister Mark Carney said the tax reductions would take effect April 20 and run until Labor Day. Gasoline prices have surged by over 30% since the start of military attacks by the U.S. and Israel, which have effectively frozen oil-tanker traffic in the Strait of Hormuz.
Canada joins its Group-of-Seven ally Germany in delivering financial relief this week to households facing sticker shock stemming from the war in Iran. Germany’s coalition government agreed to a two-month energy tax cut, at a cost of $1.9 billion.
The war in Iran has been more disruptive to global energy markets than the 1973 oil crisis, said Pierre-Olivier Gourinchas, the International Monetary Fund’s chief economist. Some economists in Canada warn the sharp jump in energy prices could force the Bank of Canada to raise interest rates to keep inflation expectations in check, even though the Canadian economy is struggling.
Carney said his temporary fuel-tax cut — to apply to gasoline, diesel and aviation fuel — would cost the treasury about 2.4 billion Canadian dollars, or the equivalent to US$1.74 billion. Canada is a net exporter of crude oil, so income in the country is set to rise due to higher energy prices. Carney said the fuel-tax relief represents taking some of that windfall to temporarily offset the rapid rise in gasoline. The hope, he said, is that energy prices stabilize and the U.S.-Iran conflict subsides by early September, or when the tax relief ends.
“There is an enormous shock in the global economy right now because of the conflict,” Carney said at a press conference. “So we’re balancing support for Canadians with the measure today, with responsible fiscal management.”
The relief at the gas pumps comes less than 24 hours after the Carney administration won all three special elections to fill vacancies in the federal legislature. Those victories, combined with recent defections to the Liberal caucus, has secured a majority mandate for Carney, who won a minority government about a year ago.
Lower-income households are the least able to handle a reacceleration in inflation — which could jump from its present sub-2% reading to over 3% in the near term, said Randall Bartlett, deputy chief economist at Desjardins Group. Based on data, just over 14% of spending by lower-income households was on transportation costs, such as gasoline, he said. Meanwhile, households in other income brackets spent between 16% and 17% of their outlays on transportation.
“This suggests that higher earners may be more immediately impacted by the oil-price shock given their greater spending on gasoline for transportation,” Bartlett said.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
04-14-26 1223ET