Alberta Waives Fuel Taxes to Combat Pressures from Stubborn Inflation

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--With inflationary strains enough to give the nation's central bank reason to hike lending rates again, the provincial government of energy-rich Alberta said it was waiving a tax on road fuels until the end of the year to provide some relief.

Alberta's government said the rising cost of living is creating a burden for everyday households and the province is committed to easing the pressure by way of relief at the pump.

Eliminating a fuel tax will save Albertans an extra 40 cents (USD) per gallon (9.8 cents per liter) each time they need to fill up their tanks.

"These savings have and will continue to have a real impact on the pocketbooks of Albertans," provincial Finance Minister Nate Horner said. "This measure is just one of many to help Albertans with the rising cost of living and it's relief we can provide thanks to Alberta's strong fiscal position."

The waiver will stay in place regardless of the direction of oil prices until at least December 31. The provincial government added that its "strong fiscal position" means it can afford to offer relief while at the same time ensuring a healthy level of economic growth.

In its latest economic outlook, the provincial government said it's expecting an economic lift from the oil and gas sector. The surge in energy prices that came as a result of the Russian invasion of Ukraine last year carried over to 2023 to support investments in upstream activity, while an uptick in the population means the workforce is strong.

"However, rising borrowing costs and elevated prices will continue to dampen consumer spending and non-energy business investment," the provincial government said.

The Bank of Canada, the nation's central bank, said that consumer price inflation is lower than it was last summer, when major economies saw year-on-year inflation flirt with 10% in some cases.

Canada's economy, however, performed stronger than expected during the first quarter, with gross domestic product (GDP) expanding by 3.1%, better than its southern neighbor. Nevertheless, consumer-level inflation increased to 4.1% in April, the first increase in 10 months.

With energy prices far lower than year-ago levels, the central bank is expecting inflation to slow to around 3% this summer, though policymakers are concerned that inflation "could get stuck" above the 2% target rate.

Based on that, the bank opted for a 25-basis point increase in its lending rate as part of an effort to bring inflation back to what it considers a sustainable level.

"We know this tightening cycle has not been easy for many Canadians," said Paul Beaudry, the bank's deputy governor. "But the alternative -- not controlling inflation -- would be far worse, particularly for people living on low or fixed incomes."

Tax relief could provide Albertans with more discretionary cash, which on top of a strong labor market would only incentivize demand and lead to further inflationary strains. But this is the second waiver in as many years and the government is forecasting steady levels of economic growth through the middle of the decade.

Provincial GDP of 2.8% this year is expected to outpace the rest of the country and expansion should be moderate, rising to 3% next year and averaging 2.9% between 2025 and 2026.

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