This article originally appeared in the National Post.
By Jerome Gessaroli, June 9, 2023
A growing number of Canadians are finding it increasingly challenging to maintain their standard of living, with more and more people struggling just to afford basic necessities.
Even though a range of contributing factors — such as rising commodity prices, or supply disruptions due to the war in Ukraine — are beyond our government’s control, Canadians nonetheless hold the belief and expectation that any actions or interventions taken by the government will lessen the burdens we face. Unfortunately, too often government policies often have the opposite effect and financially burden Canadians further.
A good example of this is car ownership, which is vital for most Canadians. In 2020, the COVID-19 pandemic disrupted supply chains, production and shipping, resulting in a shortage of new vehicles. Consequently, dealer vehicle inventory plummeted, which drove prices higher. Today supply chains remain an issue, and with new-vehicle inventories still below pre-COVID levels manufacturers are shifting their product mix toward more expensive models to make up for lower sales volumes.
New car prices have now been pushed well above previous levels. In the first three months of 2023, the average new car price in Canada was 35 per cent higher than two years earlier, to $61,000 compared to $45,000. Average used car prices are up by 50 per cent over the same period.
To compound the problem, the federal government mandated that 20 per cent of new vehicle sales be electric vehicles (EVs) by 2026, with a complete transition to 100 per cent EV sales by 2035. Auto manufacturers now face significant and costly challenges in operating separate but simultaneous production lines for both EVs and gas combustion vehicles. If manufacturers can’t produce enough EVs to meet the government’s ambitious targets, they may have to reduce the number of gasoline combustion vehicles they produce, so that their EV percentage numbers become proportionately larger.
Unfortunately for consumers, both situations will further raise auto prices. Producing enough EVs to meet government targets will increase prices overall because EVs are more expensive than equivalent gasoline-powered vehicles. But prices will also rise if manufacturers have to reduce the supply of gasoline-powered vehicles to meet the mandated production ratio.
Another concerning policy is the federal government’s Clean Fuel Regulations, which a recent study by the Parliamentary Budget Officer (PBO) indicates will reduce Canada’s 2030 real GDP by $9 billion. Moreover, the government itself estimates a cost of $350 per tonne of carbon dioxide removed under this program.
The current federal program offering subsidies to EV buyers adds another layer. In a paper published by the Macdonald-Laurier Institute, I estimated the cost of eliminating one tonne of carbon dioxide through the federal EV subsidies to be $355 — and if provincial subsidies are included, up to $960. While the federal government claims that society saves $65 for every tonne of carbon mitigated, the costs associated with the EV subsidies and the Clean Fuel Regulations far exceed any financial benefits.
Finally, every government policy mentioned above is unfair to lower-income households. The EV sales mandates will make vehicles more expensive, which particularly hurts low-income Canadians who must spend a larger proportion of their money on a vehicle purchase. Likewise, the Clean Fuel Regulations, according to the PBO’s calculations, will also affect lower-income households disproportionately. EV purchase subsidies, meanwhile, mostly benefit wealthier households who can afford the higher priced EVs and thus use the credit.
Looking at the consequences of high auto prices on Canadians, the government’s regressive policies are excessively impacting those who can least afford it. Not only do they make many Canadians worse off, the policies do not reduce greenhouse gas emissions in a reasonably cost-efficient manner. We may not see it directly, but every poor policy implemented erodes our standard of living.
Ottawa is making policy errors too frequently and this needs to stop. In the future, the government needs to more carefully consider the negative effects that a policy may have on Canadians, as well as the policy’s cost in achieving its objectives.
Jerome Gessaroli is a senior fellow at the Macdonald-Laurier Institute, and leads “The Sound Economic Policy Project” at the British Columbia Institute of Technology.
