Ontario is cutting the gas tax on Canada Day. Here’s how it will affect gas prices

The province's promise to cut gas taxes takes effect Friday, and while experts feel it may offer Ontario drivers some relief when fuelling up, others question the decision to lower gas taxes during a period of record inflation.

The average price of gas in most Ontario cities has been hovering around $2 a litre for some time, with analysts speculating summer prices could skyrocket to $2.25 a litre.

Here's what's changing on Friday.

What you'll pay at the pumps

As of Thursday afternoon, price drops at Ontario pumps should be around 11 cents per litre, bringing prices to an average of 1.929 per litre, according to Roger McKnight, chief petroleum analyst with En-Pro International.

Of that 11-cent dip, 5.7 cents is thanks to the provincial gas tax cut.

How the gas tax cut and fuel tax cut work

As part of legislation announced in the spring, starting Friday, Ontario will cut both gas and fuel taxes by 9 cents.

So, the gas tax rate will be cut from 14.7 cents per litre to 5.7 cents per litre.

And the fuel tax rate, which applies to diesel, will go from 14.3 cents per litre to 5.3 cents per litre.

The cuts will start July 1 and expire Dec. 31, 2022, and come at a cost of roughly $645 million.

How will drivers see savings?

Petroleum analyst McKnight said the upcoming gas tax cut is an overdue Band-Aid solution" but consumers will likely see some benefit in its early days.

According to the province, the gas tax cut combined with the elimination and refunding of licence plate renewal fees for vehicle-owning households would save a combined average of $465 in 2022.

Ontarians who don't drive or own vehicles could benefit from the impact of the gas tax cut, says the province, in the price of things like taxi or ride-share fees, food delivery costs and consumer products.

However, McKnight said there's a limit on what Canadian politicians can do to control prices long-term, considering foreign geopolitical factors impact the price of crude regardless.

My advice to consumers when they see the price on Friday is to enjoy it, but I don't know how long it will last," McKnight said. Politicians have no control over the price of crude or the geopolitics that's happening way outside our borders."

The province, meanwhile, stresses that the program, which provides financial support to public transit in municipalities across Ontario, will continue to receive funding through the program and will not be impacted by the gas and fuel tax rate cut.

Ontario continues to call on the federal government to reduce the carbon tax, which rose to 11.05 cents per litre on gasoline and 13.41 cents per litre on diesel on April 1, 2022.

Will gas tax cuts help with inflation?

Gas prices help fuel inflation, which soared to a record high in May at a whopping 7.7 per cent. The average price of gas in Canada is up 48 per cent from last year, with most prices in Ontario cities now staying around $2 a litre or higher.

The Conservative party would argue that passing down savings to drivers can help fill gaps in wallets left by rising costs associated with inflation.

However, this temporary fuel tax cut, even at the provincial level, may not seem like the right move, argue some experts, who feel it won't address the root issue that is driving up gas prices: an imbalance between supply and demand impacted by geopolitical factors.

The mismatch of supply and demand in terms of consumer spending during the pandemic has also contributed to inflation, something the Bank of Canada has pointed out could take some time to return to normal, and a challenge some experts say this gas tax cut fails to address.

With files from Canadian Press.

Ivy Mak is a team editor on the Star's breaking news desk, based in Toronto. Reach her via email: ivymak@thestar.ca