Governments are not natural. Governments and nature share just one characteristic. Both abhor a vacuum.
If I pump the air out a container and make a small hole, it will not be long before nature has filled the space. The same is true with governments and by observing this characteristic, we can make predictions that are likely to be right.
Suppose gas sells for $1.30 per liter and people grumble but put up with it. As the result of the falling price of oil, the retail price has dropped to $0.90. A 40 cent vacuum. The government will want to fill that space with a new tax. If people tolerated $1.30 and the new price with the new tax is $1.10, will there be a revolution? Likely not.
It is easy to see that there is room for a new tax with little political fallout, so there will be one.
The perverse reality of the intersection of government and markets is interesting.
When gas costs 90 cents, the share of each liter that goes directly to the governments is about 36 cents. 40% of the selling price. At $1.30 their share is higher at about 41 cents but it is just 31% of the sale price. You would think that when their share of the sale price is lower there is more room to increase it, but that is a business idea not a political idea. So the taxes will increase when their share is already high and the retail price is low.
It would be wise to ask yourself, “Will they take the tax off when the price of crude oil rises and forces the retail price of gasoline to rise or will they blame the oil companies?”
If you think for a nano second that they might reduce the tax, you are too naive to be a voter. Politics, economics, business and your budget rely on materially different ideas than do politics.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.