Finances of the Nation: The Past, Present, and Future of Fuel Taxation in Canada

This article examines the fiscal landscape of gasoline and diesel fuel taxes in Canada at the federal and provincial/territorial levels. After describing the taxes and the current carbon-pricing system, the author discusses the various rationales put forward to justify the taxation of fuels. He notes that the revenues from these taxes have declined as a share of total government revenue, and explains why this decline is expected to continue into the future, especially as electric vehicles become more widely adopted. The article then considers the advantages and disadvantages of replacing fuel taxes with a tax on vehicle kilometres travelled (VKT). Finally, the article provides initial estimates of VKT tax rates that would replace the revenue from current federal and provincial/territorial excise taxes on gasoline and diesel fuels.