HALIFAX, THURSDAY, JULY 8, 2004
SELECT COMMITTEE ON PETROLEUM PRODUCT PRICING
9:00 A.M.
CHAIRMAN
Mr. William Dooks
MR. CHAIRMAN: My name is Bill Dooks. I'm the Chairman of the Select Committee on Petroleum Product Pricing. Welcome to everyone here this morning. The order of business today - we're going to do our committee business first. By saying that, first of all I'll open up to the committee members to introduce themselves.
[The committee members introduced themselves.]
We have two visiting MLAs with us this morning. Gentlemen, good morning to you. Gary Hines and Ron Chisholm are sitting in.
Angela Johnson, if you wouldn't mind being seated at the mic, I understand that you're going to give us a bit of an overview of your responsibility to the committee.
MS. ANGELA JOHNSON: I'm the media liaison from Communications Nova Scotia, and I'll also be writing the report at the end of the process. I will be travelling with you during the road show for each of the actual events. Does anybody have any questions?
MR. CHAIRMAN: Are there any questions for Angela?
1
MR. BROOKE TAYLOR: Mr. Chairman, just a comment. I would like to welcome Angela to her duties with the committee. We're very pleased that you're on board. I would just suggest, politely, that she's up to a hearty challenge, travelling with such an illustrious group. (Laughter)
MR. CHAIRMAN: Also, there's a bit of business that we have to address, the appointment of vice-chairmen, in the case of my absence then we would have someone from the Liberal caucus and NDP caucus fill in. So we would ask someone from the Liberal caucus to appoint a vice-chairman, and also someone from the NDP caucus.
MR. CHARLES PARKER: I nominate Frank Corbett for the NDP. (Interruptions)
MR. CHAIRMAN: And Russell for the Liberal caucus.
Is it agreed?
It is agreed.
I'm going to pass it over to the clerk to talk a little bit about our hotels and venues, so if you would like to address that, I would appreciate it.
MS. MORA STEVENS (Legislative Committee Coordinator): All of the hotels have been booked, as you will see in the ad. The places that the committee is going in those salons and venues, that's where your hotel room has been booked. I sent an e-mail around concerning the cancelling of rooms for members. You all have a room in every place right now. Now we have had a few people who have said, no, I don't need a room there. So, if you could look at your schedules and let us know, as soon as possible, where you won't need rooms, either Kim, myself, or Darlene, that would be fabulous. If we don't have them cancelled in time, we end up paying for empty rooms. I just want to stress that - that as soon as you know, let us know.
MR. CHAIRMAN: Are there any questions on that?
Correspondence. I have received two pieces of correspondence. One is from the Canadian Petroleum Products Institute simply stating that if we need any support we can rely on that particular organization, and that they will, on their own accord, be following and visiting each information session. I don't know, Mora, if we have to address that and answer back.
Another piece of correspondence that I received is from MLA Mark Parent. Does everyone have a copy from Mark? We have to be very careful with this, because Mark is requesting that we now add an additional meeting for his riding. Clearly, we had a session last week and we did pick out our five preferred sites. In saying that, members of the media and a number of radio stations have contacted me as the chairman, and I had said that we went through that process. Now we know and understand that each and every one of us would like to have a meeting in our own riding but, because of time restraint, that's impossible.
I would ask the committee to stand firm on the decision that we have made with the five preferred sites. Now I will open this up for discussion. As I said, in this committee we work on consensus, but in saying that we have booked and notified our five preferred sites.
MR. JAMES DEWOLFE: I just want to reaffirm my position on it, that I agree that we should continue on the basis of the sites that we've picked already. For instance - and I'll just use this as a for instance - those from Amherst have to travel to Truro, which is a greater distance than coming across from, say, Kentville to Bridgewater. Just as an example, everyone has to travel, for the most part, to get to these meetings. We did spread them out throughout the province. I agree with the position we've taken.
MR. CHAIRMAN: Thank you, Jim. Remembering that anyone who would like to take an opportunity to write a submission, there's a process for doing that as well.
MR. RUSSELL MACKINNON: Just one short snapper, Mr. Chairman. I'm curious as to whether Mr. Parent attends his Tory caucus meetings and, if so, what in heaven's name is he doing when he couldn't have raised this with his own caucus members before they came to the committee?
MR. CHAIRMAN: Thank you for your comment, Russell.
MR. FRANK CORBETT: Thank you, Mr. Chairman, for your lack of comment. (Laughter)
MR. GERALD SAMPSON: . . . your decision to stick with the five sites already chosen.
MR. PARKER: Mr. Chairman, I can't disagree with that thought, although I will admit I've had representations from people in the Antigonish and Port Hawkesbury area who feel it's a long way to go to either Sydney or Truro, and they just felt that middle ground, if we're going to look at any further locations, that's one they felt would have received merit for an additional location.
MR. CHAIRMAN: Is there any further discussion?
MR. CORBETT: Mr. Chairman, I agree with my colleague, but there are some of us around the table who have been on select committees before and we had found that once we opened that door of saying, oh, we forgot you, I think we ended up adding some locations and coming back to others. I think there's a point, and these locations are appropriate. I realize that some of the frustration is that it's about petroleum pricing and people using vehicles to get there. We do have other routes in which to contact us. So, well dear, I would love to go to Guysborough and so on, there has to be a point where we have to just kind of shut it down, for a lot of reasons, not the least of which is fiscal responsibility. I think these are appropriate locations, and I agree with them.
MR. TAYLOR: Mr. Chairman, I would like to say that the decision, as we all know, to go to the five different regional locations was a decision of the all-Party committee. It's very unfair to imply that somehow - maybe there wasn't an implication, but I felt there was - the Tory caucus decided where we're going to hold these meetings.
I would say that it would have been helpful if we had correspondence like this before we actually made our decision rather than getting it after the fact. I certainly understand where Mr. Parent's coming from, but it may have been more helpful to have had a request like that before we actually deliberated on the sites, but I think it's pretty well etched. Thank you.
MR. CHAIRMAN: Thank you for your comment and, not seeing any further discussion on the five meeting places as planned, the preferred will stand.
Additional briefing session. We also discussed in our last committee meeting that we would ask for outside witnesses to come and to brief us. We've invited some government federal regulators and also provincial people from P.E.I. Now, I'll turn it over for an explanation of that - Mora.
MS. STEVENS: Unfortunately, we couldn't have them in another briefing session later today or sometime before the road show, it just wasn't physically possible. From the federal government, there are people lined up from the Competition Bureau of Canada and the Department of Natural Resources, as well as Prince Edward Island - the P.E.I. Island Energy Corp. and the Island Regulatory and Appeals Commission. The question is now, do you still want the briefing after you've completed the road show, but prior to your report deliberations? Tuesday, July 27th seems to be a good day for most of the people that I have been in contact with, so it's just a matter of getting your opinions and approval on that.
MR. CHAIRMAN: So the question would be, do we want to have an additional briefing session on July 27th? Okay, approval of that. Thank you very kindly.
Saying that, approval of background information for the Web site. We have talked a little bit about that, and would you also like to explain a little bit about that as well?
MS. STEVENS: Margaret and Sandy have put together a great list of all of the Web sites that they thought appropriate and maybe Margaret would like to address that.
MS. MARGARET MURPHY: The one question we have is that bill that ended up in the Law Amendments Committee, that's the one we thought the committee could decide. It might be confusing for the public, I don't know, because it's left in Law Amendments. That's the first one on your list, but the rest of it, I think, is fairly generic. This is just for the Web site and we'll have links from the Web site for background.
MR. CHAIRMAN: Just information for people to tap into.
MS. STEVENS: Yes, the background information is mentioned in the ad. There's a button already on the Web site saying it will be updated by tomorrow.
MR. CHAIRMAN: Okay. Comments? Thank you very much. That was quick. We should always do committee meeting business first, I think.
I'm going to just open it up for any new business that somebody would want - any comments? No? Okay, very good. Thank you.
Going on to Page 2 of our agenda. What we're going to do at this time is we're going to have briefing sessions. We have staff from different departments. The committee can choose whether we have an in-camera session and/or if we want to leave this session open. That's the choice of the committee.
MR. HOWARD EPSTEIN: Today's session?
MR. CHAIRMAN: Yes. Open? Good, thank you.
We would ask Mike Duda from Service Nova Scotia and Municipal Relations, and also Bernie Meagher and Frank Moore to sit up front. The process of the procedure would be if you have a presentation for us to proceed with that, and in respect of time - we always like to say that as well. If any committee members would have questions for you, we'll open it up after your presentation.
[9:15 a.m.]
MR. MIKE DUDA: Thank you, Mr. Chairman, members, guests. We do have a presentation. It's fairly lengthy, but I will try to keep it down. I will be opening the presentation, then partway through staff from the Department of Energy, Allan Crandlemire and Bob Newcomb, will be walking you through a document, and then Bruce Hennebury from the Department of Finance will be making a brief presentation as well.
MR. CHAIRMAN: Collectively, together you're doing the presentation? Not individual departments, but everybody together? Okay, that's great.
MR. DUDA: Yes. The presentation will basically flow in this manner - we'll give an overview of the industry and product sales. We'll then talk about current prices, look at prices over the last 18 months or so with some across-the-province information for you. We'll look at prices longer term over the last number of years, then we'll start looking at how industry and government interpret the pricing data, and then we will talk about some options that we as government have studied over the last six months to deal with the issue of high gasoline and furnace oil prices. Then we'd be glad to open it up to questions.
Again, thank you very much for this opportunity. This will follow fairly closely the package we handed out to you. This is obviously a very large industry, a very complicated, very complex industry, difficult to understand. I sympathize with your task here. It's not going to be an easy one, especially in the time you've been given, but hopefully we can provide you some useful information.
You start with the raw product, the crude supplies. In this province, basically we rely on several sources of crude oil that is refined in the local refinery or by Irving in Saint John. Largely, it's Brent crude which is a North Sea, off of England, crude. It makes up approximately 45 per cent of the crude that is brought into this region. We also rely on some South American Venezuelan crude, and some Canadian Hibernia crude is also refined by our refiners.
The next layer is the refiners, and basically we have two refiners in this province - Imperial, across the harbour, probably supplies about 90 per cent of the product in Nova Scotia, and the other main supplier in this market would be Irving that supplies part of the geographic part of the province.
There are exchange agreements across Canada between these various refiners, such that Shell doesn't have to bring in product from its refinery to sell in Nova Scotia, they buy product from Imperial Oil and, through an exchange, Imperial Oil then buys product from the Shell refinery in some other part of Canada. So you are not buying Shell-refined gasoline when you go to a Shell station in Halifax, for example. You're buying probably Imperial Oil - Shell may add some of their additives in the truck when they take it from the refinery to the
gasoline station, but basically it's an Imperial Oil-refined product. So there are all these exchange agreements that allow them to be more efficient in the way they distribute products around the province.
Then the next layer is the wholesalers/retailers. I'm sure you're quite familiar with those - Imperial, Irving, Shell, PetroCan, Ultramar, Wilsons, Emera and Xtr. These are either multinationals, as Imperial and Shell would be, and some are what we call regional wholesalers - Irving, Ultramar - and then there are the locals, companies like Wilsons, Emera and Xtr. Those companies that I just spoke about, they wholesale the product and they also have their own retail outlets.
The next segment of the industry is independent retailers and I'm talking about gasoline here. There are those eight wholesalers that I spoke about before that have their own retail outlets and then you have some additional players that are not really wholesalers, they just own retail outlets. Some of the co-op stores have retail gasoline. Canadian Tire has a few outlets in the province. Sobeys, Atlantic Superstores, et cetera, are starting to bring more and more retail outlets into the province. These, basically, do not have wholesale distribution in the province, they buy from one of the other wholesalers that I referred to earlier.
Switching over to the furnace oil side, we have quite a few more players in that sector. We have 87 operators across the province, large and small. We divide them up largely around who provides full service. Again, those are some of your larger companies - Wilsons, Thermoshell, Esso, Irving. Then you have the various discounters that I'm sure you've heard of - Save on Fuels, Discount Fuels - those players that basically sell on price. The full service provide you perhaps more services, clean your furnace, service and maintain your furnace, but also probably charge a little higher price than the discounters for that service. So that's the basic structure.
The next slide here - and my apologies, I should have made this into a pie chart - shows you the various major products that are sold in the province - gasoline, furnace, diesel, heavy fuel oil, then others, propane, avgas, marine fuel - for a total of 3.8 billion litres of product sold in the province. Gasoline is the largest with 1.2 billion litres, furnace is next at 0.8 billion. So you see the rough breakdown of the various fuels for a total of the 3.8 billion litres. So even though Nova Scotia is a relatively small market, 1 cent on this large amount of sales is a significant amount of money. We tax about 3 billion of that 3.8 billion so 1 cent means $30 million in consumers' pockets. Either if that 1 cent is up, it's $30 million out of their pockets or if the price goes down by 1 cent, it's $30 million in their pocket. So it's a fairly large number when you're talking these kinds of volumes.
Now, I would like to move over to the pricing side for a few minutes. This is gasoline prices as of Tuesday in Halifax. We do a regular survey of prices through the Department of Energy weekly on Tuesdays and also a national consultant to whom we subscribe does the survey on Tuesday as well. So bringing that information together we're able to provide you
with fairly up-to-date prices. In Halifax the current price for regular unleaded self-service is 88.9 cents, at least it was a couple days ago. Of that, taxes are by far the largest component at 37.1 cents. That's federal and provincial taxes. I won't go into too much detail because Bruce will be speaking about that a little bit more later, but those are all the combined government taxes. The marketer margin, which is the wholesalers that I was speaking about and the retailers, that's the money they make. On 88.9 cents they're currently making about 7 cents. Again, that's Shell, when they pick up from the refinery, their cost plus the Shell station itself is part of that 7 cents. So that wholesale and retail distribution is what we call the marketer margin.
There's then the refiner margin. At 14.3 cents that's the margin that the refiner in this region is capturing on that sale of 88.9 cents, they're making 14.3 cents, and if they buy Brent crude which I spoke about earlier, which is the major crude into this region, on Tuesday they paid 30.5 cents for that crude oil. So those are your relative breakdowns of the prices on Tuesday for regular unleaded self-serve gasoline in Halifax.
Switching over to furnace oil now, again we have the components of the price. As of July 6th, using the same surveys and so on, the total price was 66.8 cents. Here taxes are a much smaller component. There's only one tax, HST, on furnace oil, 8.7 cents. The marketer margin is 18.7 cents. You will recall that's quite a bit larger than on the gasoline because basically what they are doing is they're taking the product from the refinery and delivering it to your door rather than to a gasoline station, so higher costs there. Built in there is also those services that these wholesalers provide to you, cleaning your furnace and so on. So that's largely why you see a larger marketer margin there than you do on gasoline. The refinery margin, 8.9 cents, a little less than on gasoline because you don't refine furnace oil as much as you do gasoline so the cost is a little less and we've used the same crude there, 30.5 cents, that's the Brent crude. That's what they paid for that crude on Tuesday.
I would like to turn it over to the Department of Energy now and they'll bring you up to date on some data over the last 18 months.
MR. CHAIRMAN: Thank you very much. If you just would introduce yourself.
MR. ALLAN CRANDLEMIRE: I'm Allan Crandlemire with the Energy Transportation and Utilization Division of the Department of Energy. This is Bob Newcomb with me who's also with the Department of Energy. We've put together a binder. Unfortunately, we didn't anticipate that there would be as many players in the room as there are so we don't have copies for everyone, but certainly copies for all the members of the select committee and I think there are two or three extras, but I'll just walk you quickly through the report of information that we have here.
Our department collects data weekly on gasoline and fuel oil prices. We put out a monthly report and the first section of your binder here just has the monthly reports for this year. So it starts off with the report for June and if you'll just flip to the first page, you see gasoline prices across the province for May and June, a comparison of how the prices changed for various towns throughout the province, and then at the bottom of that page a variation across Canada, basically, just picking the capital cities or a major city from each province and showing the prices there and, again, the change from the previous month. If you turn the page, it's the same data only with taxes out. Things jump around a bit because of different taxation levels province to province.
[9:30 a.m.]
On the third page it shows the same information graphically, so basically a picture of what prices have done in various towns or cities throughout Nova Scotia during the last year and a half, the information tracks from January 2003, through to June 2004, and relatively consistent as you can see in terms of the ups and downs throughout the province.
The top of the next page compares Halifax price to an average Canada price and again you can see that Halifax is running just slightly higher with taxes in almost exactly the same as the Canadian average with taxes out, and obviously tracks the national average pretty closely.
Then there's a snapshot on furnace oil prices with taxes in and taxes out over the next couple of pages comparing various locations in Nova Scotia as well as a page that compares Halifax prices to various cities across Canada, and graphical information at the end of that section.
I won't go further into the other pages in this section, basically all they are, are pages from the May report, the April report, that sort of thing. We didn't include the graphical information for the other months because, in essence, the graphs you see for the June report cover everything from January through, so if you move backwards month by month, you'd be just cutting off one point on the end of the graph for each period.
I will flip through to the Nova Scotia price variation section. I think there should be a tab on your binder that will take you to that section and it will just show graphically how the average price in various towns compares to the Nova Scotia average. You can see that the biggest variations are for Yarmouth, which tends to run about 1.4 cents above the provincial average and for Kentville, which tends to run about 1.6 cents below the provincial average.
I guess in a perfect world you would assume that Halifax would be the lowest and the further you move out from the city, it would get slightly higher just because of the cost of transportation of moving product from the Esso Refinery to Truro or New Glasgow, or
Sydney at the extreme end in that direction, or Yarmouth the other way, but the world isn't quite that exact as you would see from that bar chart.
The next few pages just show the variation town by town. These are weekly averages, but you see Amherst being just slightly above the provincial average but bouncing around a bit, sometimes above, sometimes below. New Glasgow, similarly . . .
MR. DANIEL GRAHAM: Mr. Crandlemire, I just want to be certain about exactly where you are on this?
MR. CRANDLEMIRE: I'm in the second section under Nova Scotia price variation, and I'm about the second or third page in now, so it starts off with bar charts and then Amherst, New Glasgow, Bridgewater.
MR. GRAHAM: Okay.
MR. CRANDLEMIRE: When you move along to Kentville, for example, you start to see larger spikes, much larger variations from the provincial average than you saw in any of the previous graphs, moving off as much as 9 cents or so per litre, at one time or another below the provincial average and in the case of Kentville, it tends to be predominately below provincial average.
MR. DEWOLFE: Allan, when you're averaging, do you take into consideration the discount gas outlets, when you're doing the averaging?
MR. ROBERT NEWCOMB: When we survey each week, across each of the regions we've attempted to have two of what you would call the majors, and then one of the independents, to try to bring that factor in each of the eight regions. Just one comment about your binder, for some reason the scale on the Sydney one is different from all the rest, so it makes the variation for Sydney look bigger than the rest because it's on a smaller scale. What I can do is I will redo that side and send it to you with the same scale as all the rest, to put it in its proper perspective, because anybody who just flips through this right now would think that Sydney is more variable than (Interruption) It does, but visually because the scale is different, the first impression looking at it is different, as well. If you feel that you want to . . .
MR. CHAIRMAN: You can pass it along and we'll distribute it to the committee members.
MR. NEWCOMB: Yes, and then the binder, I just caught that this morning, on the way over so I wanted to point that out.
MR. CHAIRMAN: Yes, thank you. I appreciate that.
MR. CRANDLEMIRE: Although just on the Sydney one, while it is exaggerated a bit because the scale only varies to 8 cents rather than 10 cents, you can see as well there is more variation there. The peaks and valleys are higher in Sydney than they are in any other location. It's as much as 7 cents below the provincial average, and it occurs a couple of times and it's as much as 4 or 5 cents above the provincial average, and that occurs a few times.
MR. CHAIRMAN: Yes, okay.
MR. CRANDLEMIRE: I think the important part to notice is it's moving both ways, sometimes it's quite a lot higher than provincial average, and sometimes it's quite a lot lower than provincial average, so it is symmetrical in that regard.
MR. CHAIRMAN: Okay.
MR. CRANDLEMIRE: Truro, as you can see, doesn't have nearly the magnitude of swings as Sydney or Kentville does, nor does Yarmouth, but you'll notice that Yarmouth tends to be above the provincial average quite consistently.
The last page in the section on Nova Scotia price variation, just shows the rack price from the Esso Refinery compared to crude oil prices, and I think it demonstrates that there is quite a strong correlation between how prices vary and crude prices that wouldn't come as any surprise to anyone, certainly there are periods where there is a bit of a lag between the price showing up at the refinery gate and crude oil prices, but . . .
MR. CHAIRMAN: Howard, you have a question?
MR. EPSTEIN: This last table in your tab two is quite an interesting one. Do you have that data available over a longer period of time? This I take it is just for this calendar year so far, so the first six months. I think it's pretty crucial to our deliberations to know how this looks over a longer period of time.
MR. NEWCOMB: I could get that data. Actually, one thing to note, Mike is working off of a Brent crude price and this is like a West Texas intermediate price and those two basically track one another. There's a slight difference in the values of that but the qualitative results are basically the same, but I can take this back to 2000 and that will give you four and a half years.
MR. CHAIRMAN: Good, thank you very much.
MR. DUDA: We'll be speaking about this quite a bit more further on in the presentation.
MR. CHAIRMAN: Thank you. Gerald has a question.
MR. GERALD SAMPSON: I was just wondering, in looking at the chart from 1998, 1999, the first quarter of 1999, 61 cents a litre; 2003, 77.5 cents a litre; 2000, 76, 72, 73, 77 cents - there's a continuous escalation in prices. Any specific reason for that?
MR. DUDA: I think we're getting a little ahead there. I will explain that.
MR. GERALD SAMPSON: Okay.
MR. DUDA: You have to be careful with that. That has inflation taken out of there, so I think it'll take a moment to discuss that one. I'll certainly address that in a few minutes.
MR. CRANDLEMIRE: Okay. Just moving to the third section of the binder, which is the national price survey, you'll see some 40-odd locations - what is it, 43 locations or something of that order? - in the left-hand column, basically showing gasoline prices in those various locations across Canada as of July 6th. The first page is with taxes in; the second page has those prices for each week of 2004, they're surveyed every Tuesday, so we see that in tabular form; and the third page has the same information only without taxes. So it puts everything on an even footing.
MR. GERALD SAMPSON: We pay the price with the taxes in, don't we?
MR. CRANDLEMIRE: Yes.
MR. GERALD SAMPSON: So why would we be interested in taxes in or taxes out? The general consumer is worried about the ungodly price that they pay at the pump.
MR. CRANDLEMIRE: Yes, but the reason for showing it with the taxes out is to get a true comparison. Obviously, the oil companies or any of the players upstream of government don't have any control over how many taxes we put on it. If you're comparing the Charlottetown price, for example, to a Halifax price, there are different taxes on gasoline in Charlottetown . . .
MR. GERALD SAMPSON: So what you're saying is if the government of the day would like to take less tax, then that would effectively reduce the cost at the pump?
MR. CRANDLEMIRE: Oh, absolutely. All those taxes are in the pump price, so if we have a higher taxation level we automatically - like by one penny, all things being equal, our price is going to be higher by one penny at the pumps.
MR. GERALD SAMPSON: Thank you, Mr. Chairman.
MR. CHAIRMAN: Okay, continue.
MR. CRANDLEMIRE: This is quite a lot of information. It covers all of this year or it covers several years' worth. Certainly if the committee has any questions as they go over that information in coming days feel free to contact us.
MR. CHAIRMAN: We have a question from Brooke Taylor.
MR. TAYLOR: Mr. Crandlemire, on your chart there - we'll just use Whitehorse as an example - with the first one under the national price survey, you have the price of 99.8 regular and then, in parenthesis, there is +/- and there is a variation up and down the chart. What does that denote?
MR. NEWCOMB: That's the monthly chart, so when it's a monthly report, that denotes a change from the previous month. On our Web site we publish a weekly report and you can get the same information as these charts off the Energy Department's Web site on a weekly basis to see what it has done . . .
MR. TAYLOR: So this is monthly?
MR. NEWCOMB: These reports, they're monthly reports. So that's how the average price for the month has changed from the average price for the previous month.
MR. TAYLOR: Thank you, sir.
MR. GRAHAM: When they are calculating the Canadian average, are they dividing by the number of locations or is there a population variable that's built into this?
[9:45 a.m.]
MR. NEWCOMB: In the tables you'll notice that there are different Canadian averages listed. The one that has a "V" with it is a volume-weighted index, which basically looks at the historic volume ratios of the different centres.
MR. CRANDLEMIRE: The bottom footnote on the first page tells you how they calculate the Canadian average. It's basically a weighted average of 10 cities, and the 10 cities are marked with asterisks and in essence it's a representative city from each province across the country.
MR. GRAHAM: It's hard to determine. I mean when we have statistics like this it can be, potentially, wildy variable, and I'm not suggesting it is, I just want to note the potential fragile nature of some of the numbers that we're dealing with. It is impossible to measure empirically what everybody's paying at every pump in the country, and we are conceding that it is even too difficult to go to - or at least we're not trying to measure the cost for all 44 of these locations, we're just selecting 10, and when we say the Canadian average down below it's in comparison to that Canadian average and it appears not to be weighted, for example, to the size of the community; in other words, Toronto wouldn't have a greater weighting because it serves more people than Charlottetown might, is that correct?
MR. NEWCOMB: It would have a greater weight because they sell more gasoline in Toronto than they do in Charlottetown. When you see the (V) behind "Canada Ave", they have volume-weighted each of the centres based on the historic volumes of sales in that city. So for the example that you cited, Toronto would sell more gasoline in a typical month than Charlottetown would, so therefore based on an historic average of how much gasoline was sold in each centre, then a weight would be allocated to each of those cities and then they would apply that weight to each of the cities' prices to come up with the volume average.
To give you an indication of the difference. If you go to the second slide of that section, which is the year to date line, you'll notice that under Canadian averages there are a lot more averages that are done. There is a Canadian average volume, which is what we just spoke about; then there is the CANADA(S), it's just the simple average of the prices of the 10 centres with no weighting; and then the next one, CANADA(P), is based on the population of each of those cities, as a weight. You'll notice that the three are different. So does that answer your . . .
MR. GRAHAM: It does. I'm not sure - those numbers are sufficiently close together that it doesn't seem to shift the numbers markedly, but it just occurred to me that if it was volume-related the four Atlantic cities don't even come up to half of what the population of Toronto would be, and so it sort of potentially throws things off.
MR. NEWCOMB: Yes and what's happening is there's not a great deal of variation across the country, so the three different weights don't make that - there is variation but as that variation increases, well then those three averages, the difference between them will increase as well, depending on how you weigh it, but as long as the variation from city to city across the country stays fairly close, those three will be fairly close.
MR. GRAHAM: I'm interested to note, if you don't mind me asking a few quick questions about the actual figures and how they relate. I think the most relevant one might be - well there's Halifax, Sydney and Truro in these figures, and on your second chart it would appear that the national average, taxes in, on a volume basis is 71.4, and (S), 72.9 and (P), 72. The prices in Sydney, Truro and Halifax appear to be a fair bit higher in this chart than the national average, and I'm wondering how much of that relates to taxes. I note that when it comes to the taxes out margins, we are much closer to the national average.
MR. NEWCOMB: Well, those two differences are the taxes - the difference in tax regions.
MR. CRANDLEMIRE: The difference between Tables 2 and 3 is taxes, period.
MR. GRAHAM: So is it fair to say that in Nova Scotia the burden of taxes on gasoline is higher than the national average?
MR. NEWCOMB: Yes, because certain provinces do not apply provincial sales tax to their gasoline. Not every province does and we do.
MR. CHAIRMAN: Thank you, Danny. Russell, please.
MR. MACKINNON: Just to follow up on that, Mr. Chairman, is it fair to say that in the areas where the prices are higher, then the tax burden is higher, like in rural Nova Scotia? Let's say, in Sydney the price of gasoline is 91.5 cents per litre or whatever, and in Halifax it's 88.9 cents per litre, are the folks in Sydney paying more taxes for a litre of gasoline? No. Okay. (Interruptions) I'm getting two people saying no, and one completely . . .
MR. NEWCOMB: There are two different types of taxes that are applied, and Bruce will probably elaborate more when the time comes. We have the flat-rate excise tax, which is the same on the cents per litre base no matter where it's bought in Nova Scotia, and then we have a percentage-based tax, like the HST, which is price-based. So it's 15 per cent of whatever the price is. If the base price is 1 cent per litre higher in one region than in another, well then HST is applied to that extra cent. To that extent, there is a variation in tax burden, but there is no systematic bias.
MR. MACKINNON: No, and I didn't imply that.
MR. CHAIRMAN: Thank you, Russell. Jim has a question.
MR. DEWOLFE: Mr. Chairman, it's more of a comment. First of all, after seeing the figures here, I'm pleased to say that in my community this week it was 87 cents per litre and last weekend it was 87.9 cents per litre, and yet isn't it funny how the human mind works because that's still quite high but after going through the shock of paying 99 cents per litre,
all of a sudden we feel that 87 cents per litre, 89 cents per litre is a good deal. Probably, all in all, in Canada we pay the lowest price for gasoline in the industrialized world, excluding taxes. Would you agree with that?
MR. NEWCOMB: Fairly closely. When you actually look at it coming out of the refineries, we compare favourably around the continent.
MR. CRANDLEMIRE: Certainly North America would pay the lowest in the industrialized world.
MR. DEWOLFE: Exactly. It's interesting.
MR. CHAIRMAN: Brooke.
MR. TAYLOR: Mr. Chairman, I don't want to get ahead of the presenters here, but we're going to hear about fuel taxes, like the fact that in Nova Scotia and New Brunswick and Prince Edward Island - no, not in Prince Edward Island - the HST base includes all excise taxes first, does it not? It does, yes. This may not be the time, but I hope, as a committee, somewhere along the line, and obviously the constitutional experts, at the time, when those three governments bought into that HST business, obviously they had their research done, but I would like to know, again - and I don't know if this is the point - what impact the HST, by being removed from the fuel taxes - and that's the 10 cents federal and the 15.5 cents provincial - would have on this province's budget.
All the information we get from the Department of Finance talks about the reduced consumption of products or other products when the price goes up. In Ontario, for example, and P.E.I., they only have the GST.
MR. CHAIRMAN: Would you like that information to be supplied to this committee or . . .
MR. TAYLOR: Well, I don't know - I don't want to get the cart ahead of the horse. I would, maybe by way of a motion, ask, Mr. Chairman, that we, as a committee, request the Nova Scotia Department of Finance to provide us with the numbers - maybe they have that today - indicating the revenue that is brought in by taxing the tax. I know that if we decide, ultimately or subsequently, to disconnect ourselves from that, it's beyond our control, we have to have the approbation of other provinces and the federal government.
I would just like to know, on that single count, what revenue the province generates by taxing the tax. I personally believe that it should be added onto those fixed costs we talked about, the marketer's margin, the retail, the crude and that. That should be, as far as I'm concerned, taxed with the HST, if we're going to tax it, and then add your provincial and federal taxes on later.
MR. CHAIRMAN: Jim wants to speak to the same issue.
MR. DEWOLFE: I'm wondering if this has ever been challenged, the tax on tax. The HST is for goods and services. Now a tax isn't goods or services. I would like to know the legalities of taxing the tax. I think we'll find that it's indeed not a valid way of collecting tax. To go back one step, I just don't think that's legal. I think we would find that.
MR. TAYLOR: I just want to say, it's not just done to gas and diesel, it's done to all commodities. Anywhere you have a province that's bought into - my learned colleagues may concur - any product that you buy that has taxes applied, all the excise taxes are added, then the HST is on top of that, 15 per cent of whatever your price is, including taxes. To apply it after fuel taxes, obviously it has been sought out and approved, but it still doesn't make it right, Mr. Chairman.
MR. CHAIRMAN: That's the very purpose of this committee, to question this type of issue. What we'll do, Mr. Taylor, is leave that until the end of the session, and then we'll bring it on the floor as a motion, if that's okay with you.
MR. DEWOLFE: We may get some address to this, too.
MR. CHAIRMAN: Yes, of course, if staff wish to address it, but I think Mr. Taylor would like it to be presented to the committee in writing, after. If anyone can verbally address this, we would appreciate that, but then follow it up with a letter to the committee. Continue, gentlemen, or is that it?
MR. CRANDLEMIRE: We've covered our piece, unless there are any further questions on the price data in the binder here. Actually I think the tax person sitting right behind me is waiting to get into the chair. (Interruptions)
MR. NEWCOMB: Just for clarification, I believe that I was given the task and committed to Mr. Epstein to update that graph back to 2000. A clarification, did you want me to redo that Sydney slide with the same scale as the rest, or . . .
MR. CHAIRMAN: Yes, I think that would be appropriate. But we don't need motions for that . . .
MR. NEWCOMB: No, I just wanted to be clear on what my personal go-forward is as a result of this.
MR. CHAIRMAN: We would appreciate that. Gerald has a question.
MR. GERALD SAMPSON: The gentleman mentioned Emera. Do you have any idea of the amount of the market that Emera controls or occupies, when you mentioned them as a distributor or as a wholesaler?
MR. DUDA: I'm sorry, I don't, either on the gasoline or the furnace oil side. I have an opinion that it's relatively small, like a couple of percentages, perhaps, but I don't know exactly.
MR. GERALD SAMPSON: One final question, Mr. Chairman. Are the prices that we pay subject to almost like a daily stock market fluctuation? What creates the price on a daily basis, this fluctuation that we always get? It seems that suddenly before a holiday weekend, everything spikes. Is that the way they do it, something similar to stock markets? Or is it just a chance to make a few extra billion dollars? You have to have it, so you don't have a choice.
MR. DUDA: We'll be addressing that a little bit further. Nova Scotia's prices are relatively more stable than if you look at, say, Toronto, where prices change almost daily, if not hourly. Halifax prices tend to hold a little bit longer. The changes are largely in response to international conditions, crude oil prices, product prices on the East Coast of the United States and then local conditions. We'll get into that a little bit more, but generally our prices tend to hold a little bit more but they do jump. There is evidence that they jump before a long weekend, no question about it. What the reasons are, I could give you several reasons why that occurs, we have seen that, but they fluctuate in some other markets much more than they do in Nova Scotia.
[10:00 a.m.]
MR. GERALD SAMPSON: You have some factual documentation for that - I'd like that as an explanation later on in the presentation. See what you can do for me.
MR. CHAIRMAN: Thank you. Danny.
MR. GRAHAM: There's a risk of picking around this information, there's a lot of it and ultimately coming up with very little. I think some of us may need to digest what you've given to us and perhaps have an opportunity to ask you questions at a later date.
I note two things. On the first I invite a comment if it's necessary. On the second, I'd like to be a bit more specific. The first, with respect to the last page, the last chart that we have where it compares the Western Ontario, Quebec and Atlantic averages. I note that at the first of this year, the price - taxes out - in Atlantic Canada was higher than it was in the other areas. In fact, Western Canada was, I would say, materially lower than the price in Atlantic
Canada. But, as we stretch out for the year and look at the last column, the price in Western Canada has gone to the highest, again, taxes out. It seems like a curious development that there would be as much of a swing as there was from 38 cents, taxes out, all the way up to 55 cents in Western Canada - it now costs more for the raw material, for lack of a better word, in Western Canada than it does in Atlantic Canada. I invite whether there's an obvious explanation for that.
The more significant question relates to regulated communities. The one that we hear about most often is Charlottetown. There are others that have some form of regulation, but Charlottetown is the one where it appears they're as close to pure regulation form as any. I'm wondering whether or not any work has or can be done to do a comparison over the last four or five years of the Charlottetown prices and the average Nova Scotia prices or a comparable community of Truro, Halifax or some such thing as that. It would give us at some point, there may be members of this committee that are asking questions about some kind of a modified regulated system. That might give us the best window into that.
MR. CRANDLEMIRE: We don't have that displayed graphically in this binder, but I know I've seen a graph that tracks Charlottetown price against a Halifax price, for the last couple of years or something of that sort. It is available. We can get you a copy of that.
MR. GRAHAM: I've seen it. I've seen the industry, the industry appears before caucus from time to time and I can recall their having provided some information that does that comparison. I'd feel more comfortable if it were done by government officials to provide us with a sense of what has happened over the last four or five years because I think for many people - myself included - when we were more inclined to support a market-driven system, there was not an expectation that we would have a sudden spike. We need to recognize that it's not just the price, it's the change of expectations, the suddenness of that change, that at least causes us to reflect on whether or not we're moving along the right path.
MR. CRANDLEMIRE: Would you like to see that comparison between Charlottetown and Nova Scotia with taxes in or taxes out or both?
MR. GRAHAM: Both.
MR. CRANDLEMIRE: Okay. We'll provide that.
MR. DUDA: In fact, we do have some information on that later on in the presentation. Just to answer your question, taxes out, Halifax has been lower than Charlottetown for eight of the last 10 years. We have some data over the last year or so in the binder. I don't have that data for the last 10 years, but we have looked at that. Halifax on a less tax basis has been lower than Charlottetown on eight of the 10 years - one of those years we were tied, one of those years we were higher. So, generally, Charlottetown regulated prices, less tax are higher than Halifax.
Now that could be for a number of reasons. It could be regulation, it could be the cost of transportation from refineries in Saint John and Dartmouth to get the product to Charlottetown. There could be a number of reasons, but that is the evidence that annual averages, we generally have lower prices than Charlottetown.
MR. GRAHAM: I think it would be helpful to see the steepness of the slopes going up and down because we hear about that a lot and what the margins are between the two.
MR. NEWCOMB: Another thing to keep in mind too as far as actual at-the-pump prices is there is no provincial tax applied to gasoline in Prince Edward Island. So there should be an 8 per cent differential on that basis. Would you want to see the graph with that adjustment made, where we take the provincial portion of the HST off the Nova Scotia prices so that it is an apples to apples comparison to Prince Edward Island?
MR. GRAHAM: Yes, that gives us a better sense.
MR. NEWCOMB: Then you're really comparing the same thing.
MR. GRAHAM: The most complete picture that you can give us and if you're able to do it the third way with the distorted graph that gives the actuals, then that would be helpful as well.
MR. CHAIRMAN: Very good. Thank you. Russell.
MR. MACKINNON: Thank you, Mr. Chairman. I'm trying to fathom through the purpose of this committee and what we're able to do or not do at the end of the day. Excluding the issue on taxes, my question to our witnesses here is, what control do we have over price? It's an external force, is it not, that we have little to no control over? Am I correct?
MR. DUDA: I'm venturing a little into opinion here, but we can control to a certain extent the retail price and a certain extent the wholesale price. But, as I indicated, the largest component of the price before taxes is crude which we have virtually no control over or no control and the refining margin which we have one refiner in the province. There are other refiners, we don't have much control over that either. But the wholesale and retail is generally what any jurisdiction that regulates prices, those are the components that they regulate. The wholesale price and the retail price margins.
MR. MACKINNON: Would you explain what factors are in each of those two, the wholesale and retail?
MR. DUDA: When I speak about wholesale margin, that's what Shell, for instance, buys the product from the refinery for, their distribution costs - marketing, promotion, distribution, profits, office overheads, those are the components of the wholesale price.
MR. MACKINNON: How would government influence that or regulate that?
MR. DUDA: Governments, and we did in the past, set a maximum wholesale price. We told companies they could not go above a certain wholesale price. That differs in some jurisdictions that regulate, they either set a maximum that you can't go above or they set the wholesale price itself - you must charge this price.
MR. MACKINNON: The reason why I asked that is because, back in 1991, the Gasoline and Fuel Oil Licensing Act, I think that's the issue you're speaking to now, correct?
MR. DUDA: Yes.
MR. MACKINNON: Would you, or someone from the department, be able to show members of the committee how that factor has changed since deregulation? Is it higher or is it lower?
MR. DUDA: What factor?
MR. MACKINNON: Well, the price, the factor allowed for wholesaling. There was obviously a set limit prior to 1991 and when deregulation kicked in, that factor fluctuated and went with the open market - supply and demand. That is very important from my point of view because the tax issue that's identifiable and quantifiable, can be controlled either through a budgetary factor or whatever. This is something that people don't see and for the most part many don't understand, but this in my view is very important because if it was, let's say, 8 cents before deregulation, what is it now? Is it higher or is it lower?
MR. DUDA: We have done some analysis of that, but it has been some time since we did that.
MR. MACKINNON: Well, I can take that on notice. I know it's a loaded question.
MR. DUDA: Yes, it sure is, it sure is.
MR. MACKINNON: If you could give us a bit of a profile, lets say five or 10 years before deregulation and then what has happened after deregulation, just so we get a snapshot
MR. DUDA: Okay, again, we have some slides on this. It wasn't going to be part of my presentation, but if I don't answer your questions in those slides, then we certainly can do some more work on it.
MR. MACKINNON: That would be good. Just one more with regard to the retail factor, that's a similar type of situation?
MR. DUDA: Right.
MR. CRANDLEMIRE: Certainly the retail margin is less today than it was prior to 1991, no question about that.
MR. DUDA: We can say that quite clearly.
MR. MACKINNON: That's counterbalanced off with the wholesale?
MR. DUDA: That we would have to look at, but you introduced, the thing you have different now that you didn't have during regulation was you didn't have self-serve. Now you have self-serve and they tend to be lower-cost suppliers of gasoline. So the margins have gone down in the neighbourhood of 4.5 cents to 5 cents during regulation down for self-serve now to, let's say, 2 cents, 2.5 cents. Many of these marketers are making even less than that. So those margins, as Allan indicated, have gone down, but you're not exactly comparing apples to apples there either.
MR. CRANDLEMIRE: Just a caution, when we give you the information that makes that comparison, obviously there's an interest in looking at the number then and the number now, but the world has changed a lot say from 1990 until now. On the retail end of things there's a lot more regulation around gasoline storage and that sort of thing. On the refinery side, why, I mean there's low sulphur gasoline specs now, that sort of thing. So there are higher costs associated with refining than there would have been back in 1990. So those numbers will capture those kinds of changes as well as just the simple change in pricing that you will see today compared to sometime a decade and a bit ago.
MR. CHAIRMAN: Mr. Parker.
MR. PARKER: Mr. Chairman, I had a couple questions I guess. Early on in your presentation you mentioned about exchange agreements between wholesalers and the refinery. I'm just curious, with Irving in New Brunswick and Imperial here in Nova Scotia, are Irving stations supplied by the Imperial refinery from Nova Scotia here, or do they supply all their own stations out of New Brunswick?
MR. CRANDLEMIRE: For the most part if you're buying gasoline in Nova Scotia, that gasoline came out of the Esso refinery. It doesn't matter what label is on the station that you buy it from, including Irving.
MR. PARKER: Okay, that's interesting.
MR. CRANDLEMIRE: That's not to say that the gasoline may be slightly different because individual companies do use their own additive mix, you know, like in the tankers as it's leaving the refinery, but it would have come out of the Esso refinery in most cases whether it's Irving, or Shell, or PetroCanada, or Esso, or Wilsons, or, or, or.
MR. PARKER: So 90 per cent of it is out of Imperial Oil here in Nova Scotia, out of Dartmouth, okay. My other question then was you mentioned about prices fluctuating in Nova Scotia from Truro to Yarmouth, to Sydney, and so on. Any opinion on why that is? The taxes are the same except for the HST, but why is it higher in Yarmouth and lower in Sydney, or whatever, or lower in Truro, you know, it doesn't seem to be distance? So is it competition or what is it?
MR. CRANDLEMIRE: Well, all things being equal there should be a distance factor because, obviously, it costs more to truck gasoline to Yarmouth or Sydney than it does to a station down the road a mile or two from the refinery. One other factor that I think is reasonable to expect and when you look at the Kentville numbers, for example, why it tends to be lower there than the provincial average. When I say Kentville, it's more likely the New Minas strip and, as I recall, there are about six or seven different outlets down the main street there, all close together and, obviously, that leads to a fairly competitive situation as far as pricing goes. Some other locations just don't have that degree of head-to-head competition on that kind of given street or location.
[10:15 a.m.]
MR. PARKER: So it's competition then really and not transportation?
MR. NEWCOMB: There are a number of factors. Like one very curious anomaly that won't show up in any statistics anywhere, it's like one of these anecdotes, is if you're driving through Hants County and come to Kennetcook, you will find that gas in Kennetcook is 3 cents to 4 cents a litre cheaper than it is in Halifax which makes absolutely no sense at all, but it's also associated with the corner store in Kennetcook and my suspicion is that they're using the gas as a loss leader to get people into their store and they're making their money. There are very few gas stations that only sell gas any more. Most of them have a convenience store attached to them as well.
As I phone around to different places, like I personally survey three markets every Tuesday, one thing that I've seen is there is a regulation that they have to post their regular self-serve prices and in regular self-serve prices there is very little variation between and among retailers within each region. However, once you get into the higher grades of gasoline, the mid grade and the premium and the diesel which do not have to be publicly posted, there can be quite a significant variation there. One company routinely steps up 3 cents from regular to mid grade to supreme. Another company policy is 4 cents between mid grade to supreme and regular. Diesel, even within metro, you can get it, like on Tuesday, the variation was from 72.9 cents to 82.9 cents a litre for diesel. So the Halifax average comes out to about 77 cents or 78 cents when you factor 72 cents and 82 cents and then another one around 77 cents. So I just wanted to make you aware.
MR. PARKER: Sure.
MR. CHAIRMAN: Mr. Taylor.
MR. TAYLOR: Mr. Chairman, earlier on we were talking about the comparison between Prince Edward Island and they have the Regulatory and Appeal Commission established over there. At our founding meeting, so to speak, Mr. Chairman, I had expressed some interest in that model and I understand we're going to have an opportunity as our committee evolves here, but when the comparison is being done, are you not looking at, like when you're doing the comparison, you talk about apples and apples. Are we going to be talking about the provincial average in Nova Scotia and the prices that Prince Edward Island has been charging? What are you going to use as the Nova Scotia model when you have such variations? For example, in Sherbrooke and Upper Musquodoboit, those folks may have been paying 5 cents or 6 cents a litre more on average than what the provincial average actually is. So what are you going to use for a Nova Scotia model to do that comparison?
MR. NEWCOMB: By the same token, we don't know what they're paying in Summerside or Rustico, or other areas of Prince Edward Island. The only data point that we have is Charlottetown.
MR. TAYLOR: Well, Mr. Chairman, that's not right. We can get the information. They will provide that. The Island Regulatory and Appeal Commission has the information for all the communities in Prince Edward Island and I think if we're going to get a picture of what's going on in Prince Edward Island, we should have the complete picture and the complete Nova Scotia picture rather than going out and picking the Nova Scotia average, or the best case scenario might be Halifax, it could be Kennetcook. Let's compare apples to apples.
MR. NEWCOMB: My intention was to do Halifax to Charlottetown.
MR. TAYLOR: Yes.
MR. NEWCOMB: And state it as Halifax to Charlottetown.
MR. TAYLOR: Yes, but I don't think that, with all respect, Mr. Chairman, is the picture. There are a lot of people who live outside of Charlottetown and a lot of people live outside of Halifax and it may be a bit cumbersome.
MR. CHAIRMAN: You want to do some rural areas?
MR. TAYLOR: Well, absolutely.
MR. NEWCOMB: A community of interest, you would have to pick, if you talk about Middle Musquodoboit . . .
MR. TAYLOR: Well, it could be Musquodoboit Harbour, Mr. Chairman, but I think it would be fair to have some rural communities, if not them all, but to have a snapshot of what actually is happening in Prince Edward Island, not just Charlottetown and Halifax, to get the complete picture.
MR. NEWCOMB: To comment on that, one issue on the Nova Scotia side is availability of data. We have historic data on seven centres and that's it for historic data and we just started collecting New Glasgow on April 1st. So the centres that we have in our binder, we have historic data for, we can go back several years and do that kind of comparison.
Again, if you have all the data for all centres in P.E.I. going to be provided for you, well, we can't match that on the Halifax side. The data is just not there. That is a real challenge that we would face in trying to provide that. As I say, if you take their biggest urban centre and compare it to our biggest urban centre, realistically I see that as the fairest apples to apples that you could realistically do. It's not the complete thing that would be best to have, but I think that's the fairest and best thing that we could actually physically do to provide you with an objective analysis.
MR. GRAHAM: Mr. Chairman, I don't want to create more work for you in the Summertime than is necessary, but I would echo the request that Mr. Taylor put out. I think that if we do have seven locations in Nova Scotia and there are seven locations - and you can choose what is fairest of the seven locations - in P.E.I. and do some kind of a comparison, seven to seven or some kind of a weighted average that gives us a better picture than just Charlottetown to Halifax, it would help the deliberations of this group, especially if, as I think someone said earlier, there's a sense that Halifax is historically lower than other parts of Nova Scotia in its prices.
That wasn't my main point, I intended to just ask a question along the lines of the ones that Mr. Parker asked and that relates to the exchange agreements. I'm trying to imagine how much flexibility there is in the private sector with respect to this. We have crude supply, refinery, wholesaler, retailer, down the line. You've commented already, a little bit, on how the retailers seem to sort of compete with each other, it's not surprising, there's a lot of them. There appears to be competition at the wholesale level, there's a sufficient number of them. But at the refinery level, 90 per cent of what goes through that process and that costing in Nova Scotia is done by one single refinery. What appears to be the case is that at the first two levels, both crude and refinery, that at the crude level we have a world price that's pretty inflexible, but at the refinery level, though, we essentially have one refinery.
I'm wondering whether or not - as I think about this, I'm not just thinking about Nova Scotia, I'm thinking about the industry from a broader perspective, that there are other multinational refiners in other parts of the country doing the same thing for Imperial that Imperial is doing for them in Atlantic Canada. At some point, for consumers, that may appear to be a bit cosy. One would hope that there would be a competitive aspect to this, but if you've got Shell working for Imperial in Ontario and Imperial working for Shell out here, and there's just one tube through which it goes to the consumers in those regions, one might start to think, are they being competitive or are they being cosy? I'm wondering if you could comment on that.
MR. NEWCOMB: I know that Mike is going to address this issue a little bit in the slides ahead, but where the competition on that level comes from is that with the old Ultramar refinery closing down the tank farm remains, so there's nothing to prevent one of these other companies from just bringing in a tanker of pure gasoline. They don't necessarily have to have it refined at the refinery here. So the refiner does have to be competitive with the global market for the commodity gasoline. There is a very competitive hub at New York for pure gasoline.
As Mike will show later, there's a very strong relationship to that wholesale price for gasoline in Halifax as compared to New York Harbour. The competition for Atlantic Canada for gasoline, wholesale prices, is the New York wholesale price of gasoline, because if the refiner can't refine it for less than what somebody can bring a tanker load up from New York for, well, guess where the companies are going to get their gasoline from? They're going to hire a tanker and bring it up from New York as opposed to refining crude and hiring Imperial to refine crude for them.
In that regard, although you're right, there is only one refiner in Nova Scotia, there's only one refiner in New Brunswick, and over the last two decades there's been a major rationalization of refining capacity across the continent, which basically established these swap arrangements in various regions. They just couldn't afford to keep all the refineries going at that time. Now we're actually starting to get some market on the refinery side on the continent, they're starting to push the envelope of refinery capacity and, as Allan alluded to
earlier, as different regions have different environmental specs on their grades of gasoline and things, it means that there's starting to be more of a need for specialty refining.
MR. GRAHAM: You would be satisfied that the competitors in New York who might just ship gasoline up the border are sufficiently independent, that they wouldn't be influenced by the multinational stuff. These are rebels, as it were, not part of the big multinational structures, who could, if they saw an opportunity, ship straight gasoline up to Halifax and compete with the Imperial Oil refinery.
MR. CRANDLEMIRE: Not so much in Canada, but certainly the U.S. is increasingly becoming an importer of refined products as opposed to crude. The U.S. has always imported crude, particularly on the U.S. Eastern Seaboard, but more and more you're seeing spec gasoline or spec diesel, home heating oil coming in as a refined product. Certainly there isn't anything to stop that same thing from happening in Eastern Canada. I will just use an example, Wilson's, as you noticed earlier on one of the slides, is a wholesaler now, distributing to the order of 200 stations in Nova Scotia. They certainly have the ability to import that gasoline, rather than buying it from the Esso Refinery. I can only assume that it's cheaper for them to buy it across the harbour than it is to import their own supply.
But in Nova Scotia, I'm not aware of companies importing gasoline. Certainly Emera, Nova Scotia Power, imports a lot of their heavy fuel oil now as opposed to buying from the Esso refinery. If you go back 10 years, they would have taken most of their heavy fuel oil supply from the Esso refinery. Now the Imperial refinery exports a lot of that product to other parts of the world, and NSP/Emera imports product for their own use. To a large degree, I know it's the same in New Brunswick with Irving and New Brunswick Power.
MR. CHAIRMAN: Gerald next and then Howard.
MR. GERALD SAMPSON: To the witnesses, given the complexity of the issue that we're discussing here and the convoluted prices and all the different factors that bear on the market and whatnot, project down the end of when we complete our hearings. What are we going to be able to affect in regard to change or the lowering or what effect we will have, what authority will we have to influence the prices at the pump, which is, basically, what the people are going to ask us at the end of the day? What have you accomplished? Can we, or is it possible that we can effect something the pump price?
MR. DUDA: I'm not going to speak for what the committee is going to come up with in a couple months' time, but we have looked at a number of different options that I'll outline later, within government. I suppose this committee could select an option, basically, status quo, do nothing, or go all the way to the other extreme, which would probably be full regulation, or any permutation in between those two extremes.
[10:30 a.m.]
MR. GERALD SAMPSON: You're telling me that we will have some authoritative jurisdiction with our conclusions that will affect the prices.
MR. CHAIRMAN: Member, I don't think that's an appropriate question to ask the staff. That would be up to this committee to determine what recommendation we're going to make. But, I think what you're doing is zeroing in on what possible . . .
MR. GERALD SAMPSON: I'm not asking for him to make a recommendation, Mr. Chairman. Where they deal in these fluctuating prices on a daily basis and they're the experts in the field of what affects prices and regulations, what authority at the end of the day, will we have to affect what it is at the pumps?
MR. CRANDLEMIRE: Can I make just a quick suggestion?
MR. CHAIRMAN: Certainly.
MR. CRANDLEMIRE: I know there's some more of the presentation that Mike Duda was going to go through. I think there might be an advantage to going through that. Your questions are very good, but I think some of them might get answered in the follow-up presentations.
MR. CHAIRMAN: Sure. Howard, are you willing to wait until the rest of the presentation or do you want to speak now?
MR. EPSTEIN: I don't need the answer right now. What I'd like to hear at some point is something along the lines that Mr. Graham was asking a moment ago. This has to do with our potential exposure in Nova Scotia should our one refinery close. That's another way of thinking about the problem that he posed. What I'd like to hear from you, not necessarily now because as you say you have more presentation, but at some point - preferably in writing - could you think about what the situation would be and what scenarios might follow in terms of our ability to see customers continue to have access to petroleum product in Nova Scotia if that one refinery did close. I'd like to hear something from you at some point, but not now.
MR. CHAIRMAN: I guess you can answer that further on into the presentation.
MR. CRANDLEMIRE: I don't think it's covered further in the presentation.
MR. EPSTEIN: It doesn't have to be today either, but at some point before we get on with the rest of our deliberations.
MR. CRANDLEMIRE: This is a little bit speculative. Let's just hope that the refinery across the harbour doesn't close, but if it did close tomorrow, I would expect this local market would be met by a lot more product from the Irving refinery in Saint John than is the case today. Perhaps imports of products from Montreal because there are several refineries between Quebec City and Montreal. Or imports from the international market place. I don't think there's any risk of there being a shortage of gasoline or fuel oil, but having said that, obviously, the loss of the local refinery would be a significant hit in terms of the economics of the province and in terms of all kinds of other issues.
MR. CHAIRMAN: Jim. Do you have a question for now or can you wait?
MR. DEWOLFE: Yes, I can save it for the end if you wish.
MR. CHAIRMAN: Well, it's up to you.
MR. DEWOLFE: We'll have a moment at the end, then I'll do it then.
MR. CHAIRMAN: Yeah, sure. In saying that, before we move on, we're going to take a three minute recess.
[10:34 a.m. The committee recessed.]
[10:38 a.m. The committee reconvened.]
MR. CHAIRMAN: I'll call the meeting back to order, and gentlemen would you please continue with your presentation. Thank you, very much.
MR. DUDA: Okay, we've spent some time on current prices. We've looked at prices over the last 18 months or so. I'd like to provide you with a little more historical data and I think that one slide that's perhaps interesting and goes to some of the questions we've had already, is a comparison of the 44 centres that were surveyed by the consultants over the last three years, across Canada.
It indicates that Halifax prices, slightly shaded there, and this is ex-tax, for each year 2004, 2003, 2002, the average prices for those years, Halifax typically is in the lower one-third of prices across the 44 centres. Also, I would ask you to note that in each of those three years, as I was saying earlier, Halifax prices for the year were lower than the Charlottetown average price for the year. Quite often Halifax prices are lower than cities much larger than Halifax. For instance, Halifax prices are lower than Calgary in each of the three years that we're looking at here, Calgary being right in the middle of the oil patch. Some years our prices are lower than Toronto, Ottawa and other major cities. I think it is very important to be aware that on an ex-tax basis, Halifax prices compare very favourably with other centres across Canada and other major centres across Canada.
MR. CRANDLEMIRE: You might just want to point out Truro and Sydney prices there . . .
MR. DUDA: Right, and small centres like Truro are lower than centres like Calgary again, very close to the Halifax price.
MR. CHAIRMAN: Mr. DeWolfe has a question.
MR. DEWOLFE: Just on that, like today we're paying lower pump prices in Halifax than we are in P.E.I. I'm just wondering, maybe Mr. Crandlemire can go to the mic too in case there's something to add to this, because I'd just like to know what would we achieve in Nova Scotia - if you look at the P.E.I. model - what would we achieve in your mind, maybe Allan, with a regulation in place? Could you answer that? Maybe Allan, because you were talking about that before, could you answer that question, what we would achieve? What benefit would we get? There's a cost to having regulations, is there not?
MR. CRANDLEMIRE: I think basically what P.E.I. gets from regulation is that you do get some delay of all of the price signals, so if world prices are moving up for crude and for gasoline fuel oils, regulation in P.E.I. tends to hold that price signal back by three or four weeks. It doesn't change say until the first of the next month. Likewise though, if prices fall it delays that by a few weeks as well, and certainly you see that now, prices in Charlottetown right now are still staying relatively high whereas they've dropped off . . .
MR. DEWOLFE: Okay, so what's the cost at the pumps for regulation? There's another cost there isn't there, that's not showing up at the pump?
MR. CRANDLEMIRE: The other piece you see through regulation is it tends to dampen the swings to some degree so at any given location in Nova Scotia, prices will be jumping up and down over the month, obviously when you set a maximum price for the month it tends to smooth out those peaks and valleys to some degree. There is a cost for doing all of that as well. A cost from government's perspective for regulating and obviously a cost from industry's perspective because they have to wait for a month to see those price signals work their way through the market. I think generally you would see a price ex-tax in P.E.I., that's the best part of a penny higher than it would be in Nova Scotia, all things being equal.
MR. DEWOLFE: So let's look at the consumer then. The consumer, over the course of a year is probably not going to benefit from regulation using P.E.I.'s model?
MR. CRANDLEMIRE: The consumer probably pays the best part of a penny more for regulation. For that he gets some delay in terms of all the price signals and he gets some smoothing of the peaks and the deepest valleys, but on average . . .
MR. DEWOLFE: But you're paying a cost for it, so at the end of the year, for your total purchase, you're probably paying a cent more for regulation in P.E.I. than you are in Nova Scotia.
MR. CRANDLEMIRE: On average he or she is paying the best part of a penny more.
MR. DEWOLFE: That's the point I wanted to make clear.
MR. CHAIRMAN: And a good point, member. Thank you. I'd like to recognize Russell.
MR. MACKINNON: Well, I don't want to engage philosophical debate at this point with witnesses because I don't think it's fair to them. I think members of the committee may be a little misled by the question and the intent of the question, speaking to the Act of 1991. The premise was, when that legislation was introduced and approved by the former minister, the member for Pictou County, it was on the premise that gasoline prices would go down. I heard the witness indicate earlier what really the factor was, what deregulation versus regulation, the factor is, and that's that cost issue that we haven't been able to identify. So while there is a cost to regulation, there's a cost to anything you do, but there's also a savings somewhere too. There was a saving, which we haven't been able to identify. Is that not correct?
MR. DUDA: Saving from regulation?
MR. MACKINNON: Well, deregulation, or regulation? Once you provide those figures, then we'll be able to determine whether, at the end of the day, the cost exceeds the benefit or the benefit exceeds the cost. Correct?
MR. DUDA: It's not going to be that simple.
MR. MACKINNON: Well, I know. That's the point I'm making, to take something this complex and simplify it down to one factor, is not comparing apples to apples. Correct?
MR. CRANDLEMIRE: It's very difficult to compare today's world to a world 15 years ago. My comments were just comparing P.E.I. today to Nova Scotia today, but certainly, if you look back to the early 1990s, when we had regulation, with what you see out there today, as far as retail outlets for gasoline goes, it's just hard to make that comparison. They were stations with two garage bays and washrooms were regulated and price was regulated and . . .
MR. MACKINNON: We don't have the quality of service that we once did because you pull in, you fill up your tank yourself. Some senior citizen goes in or someone who doesn't know anything about automotive repair work, whether it be a wiper or a burnt-out
fuse or a flat tire, you can't get that type of service in Nova Scotia anymore. That was one of the things that we were promised we were going to get. When we talk about that one cent, regulation versus deregulation, we're taking one small factor, correct? That's the cost, but when you put all the other factors in, it's unfair to say that the cost of regulation is going to be a liability to Nova Scotia.
MR. CRANDLEMIRE: By the same token, you can't estimate what the cost would be for that level of services in 2004, either way. . .
[10:45 a.m.]
MR. MACKINNON: Hopefully with enough information we'll come close.
MR. CHAIRMAN: Brooke, you have another question? Certainly.
MR. TAYLOR: Just to follow up a little bit on this discussion, I am inclined to agree with my colleague, the member for Cape Breton West here. In 1991, the legislation that went through was no doubt controversial, but I don't want to go back there but what I do want to say is that I don't personally feel that you can say with all certainty that because it costs one jurisdiction 1 cent a litre to regulate, that it doesn't cost us anything here to be not regulated in Nova Scotia, when in fact, just this morning, we have a number of individuals, professionals that probably receive, I trust they do, I hope they do, I support them receiving their paycheques, and how many other people are out there in other departments that are dealing with gas marketing and distribution. We have an economist, we have a director, we have an appeals officer, and on and on it goes. It's very unfair to try to single out one cent a litre to the cost of administering regulation for P.E.I., when we have no idea what it costs us to be not regulated here in Nova Scotia, and I strongly believe that and until we move along further into this process, Mr. Chairman, we won't have the answers to those questions.
MR. CHAIRMAN: That's the purpose of this process. At the end of the day, our recommendation.
MR. TAYLOR: Absolutely.
MR. DEWOLFE: Allan wants to speak.
MR. CRANDLEMIRE: Just one quick clarification. I wasn't suggesting that it costs P.E.I. a penny to regulate gasoline. What I was suggesting is that the consumer on average pays a penny more for gasoline ex-tax in P.E.I. than he does in Nova Scotia.
MR. CHAIRMAN: The information you're supplying to this committee is very informative today, carry on.
MR. DUDA: Okay, another chart here, again going back quite a ways now, over 30 years, just to provide you some insight into how prices, taking out inflation, have changed over the years. I believe, as Mr. Sampson was indicating, yes, prices have generally trended upwards even though you do take out inflation which is this CPI factor here, but, it's also notable I believe that the average price in 2003 for Halifax was lower than it has been during some years of the 1980s, and also in 1990. When consumers comment on the price of gasoline, how high it is - and granted, it is - but when you average it over the year and you look back over the last 30 years and take inflation out, we're not so bad. There certainly were some years over the last 30 years, five or six of them at least, that we were paying higher prices than we did last year. That's just, again, for your information.
The last couple of slides I'm not going to spend a whole lot of time on. They're quite busy, but just for your own information for the future, they are the various tax rates imposed by provincial governments, and then the federal government, on various petroleum products. You'll note that Nova Scotia has a 15.5 cents road tax, which is higher than most of the other jurisdictions - not all, but most. As we indicated earlier, three jurisdictions, including Nova Scotia, imposed the 15 per cent HST which other provinces don't. That is part of the reason why we do have the higher taxes in Nova Scotia than other jurisdictions. Again, that's just for your information to compare the various tax levels across the jurisdictions and here we have Northwest Territories . . .
MR. GERALD SAMPSON: . . . prior statement, 15. 5 cents is the tax, plus the 15 per cent HST on top of that, right?
MR. DUDA: There's a 10 cent federal excise tax and then the 15.5 cents provincial road tax and, you're right, on top of that is then 15 per cent.
MR. GERALD SAMPSON: Okay.
MR. DUDA: So I'll turn it over to Bruce Hennebury from the Department of Finance who is much more expert on taxes than I am.
MR. BRUCE HENNEBURY: Thank you, Mike. What I'd like to do is I have three or four slides that I would just like to go through. Of course, I welcome any questions as we go through. Some of this information you'll probably find a little bit repetitive or you may already know.
Fuel tax in Nova Scotia - the fuel tax itself is levied as a price per litre, it's not an ad valorem or a tax based on price. The current rates in Nova Scotia on gasoline are 15.5 cents a litre. That does not include the HST - the HST will be addressed on another slide. On diesel it is 15.4 cents a litre - that does not include HST. Of course, we do not place an excise-type tax on home heating fuel.
There are some rebates available in Nova Scotia for fuel taxes - fishers, farmers, municipalities, railways, and forestry, are the most predominant among them. They receive either a point-of-sale rebate on the fuel taxes or they apply for a rebate afterwards on the equipment used in those production facilities.
To address the HST issue, fuel is considered a taxable supply. As many of you probably know, the HST is considered a broad-based sales tax - it's a value-added tax - and it applies to most goods and services. It is based on the same base as the national GST and the HST applies in three provinces - Nova Scotia, New Brunswick, and Newfoundland and Labrador. As I mentioned, it is a broad-based tax that includes most goods and services; that includes fuel and home heating fuel. There are some limited exemptions or zero rating on HST - most of you would be familiar with the things like basic groceries, prescription drugs, those kinds of things which are zero rated. There are some limited exemptions to the HST, but for the most part it applies to every good and service, including fuel.
The HST base includes excise taxes; that means the HST is applied after the fuel taxes. A point that I want to make is that this is true of all excise taxes, not just fuel. It's true of excise taxes on tobacco, on any other product, whether it's environmental taxes on various things, the price upon which HST is applied is the final selling price before all taxes, except the HST itself obviously. So this is not specific to fuel taxes, this is a policy that's in place on all excise taxes.
There are a few reasons for it - the biggest may be administratively. It would be a great difficulty for retailers to separate out excise taxes that are imbedded in the price of products that they pay. For example, when a retailer purchases fuel from a distributor, it's a tax-in price that they pay and for them to separate out that price and not charge HST on it would be difficult. The tire tax is another example, the $3 that we pay as an environmental tax on tires. That's one of the reasons why it's done. That's done nationally on the GST and the HST is an exact duplicate of the GST base.
It's important to remember that the HST is a piece of federal legislation; it is not provincial legislation. We share in the revenues based on the agreement we have with the federal government and the other two provinces.
MR. TAYLOR: Could you show us a little bit about that sharing?
MR. HENNEBURY: Sure. Essentially how it works is the HST, as I mentioned, is federal legislation; it's based on the federal Excise Tax Act. The way the Excise Tax Act reads is that if a supply is made in the harmonized region, it's taxed at 15 per cent; if it's not made in the harmonized region, it's taxed at 7 per cent.
What happens is businesses are not required to track their sales based on province specific. All they have to do is determine whether or not the sale is made in the harmonized region or outside of the harmonized region. All the revenues from HST go into a single declared revenue pool and that pool is shared amongst the three harmonized provinces based on a model, a revenue-sharing framework agreement that we have. That includes a number of economic and other administrative data that determines what each province's share of that revenue should be, and then the revenues are paid out to those provinces.
I guess for the sake of an analogy, when you go into a corner store and you buy a chocolate bar and you pay15 cents because the chocolate bar is $1, the 8 cent tax does not go directly to Nova Scotia - it goes into the declared revenue pool that is shared amongst the provinces based on a formula that determines how much each province would share in that revenue. The same thing happens in all the other three provinces.
MR. TAYLOR: Is that formula adjusted on an annual basis or monthly basis?
MR. HENNEBURY: There are biannual meetings of officials from the three provinces and from the federal government, and it is constantly under review and scrutiny by those officials. When necessary, adjustments are made to the formula to facilitate a fairer sharing of the agreement, as it were.
Input tax credits are available for fuel used by registered businesses. When a business, for example, such as a farming operation, or a fishing operation or a courier service or whatever, buys fuel for their equipment and it's used in the business and they are making a taxable supply themselves to somebody else, then the HST that they pay on that fuel is allowed as an input tax credit. So, in other words, they get that HST back through the input tax credit system. That's how a value-added tax works, that's what the HST is. That works the same for the HST on fuel as it does for HST on any other commodity.
The fourth point, or the fifth point I have on the HST is to address a little bit the fact that we do not feel, at the official's level, that a price increase in fuel necessarily creates a windfall in HST revenues. HST revenues are determined by the entire pot of consumer expenditures that we feel are available in Nova Scotia in a given year. When the price of one commodity goes up, then that indicates that while a consumer may spend more on that particular commodity, he or she has less to spend on another commodity.
[11:00 a.m.]
Chances are that other commodity is taxable and, therefore, if they're paying an extra dollar to fill up their automobile, then that's a dollar less that they could spend at McDonald's, or at a movie, or whatever else they might do, that's also attached to the supply. So if the price of fuel would go up and stay at that high level for a whole year, it may shift the pot from where the HST revenues come, but it will not change the pot of HST revenues.
So a greater share of HST revenues, for example, may come from the fact that fuel prices have gone up, but the entire pot of HST revenues will likely not change because it's based on the total envelope of consumer spending that's available and so that's why we, as officials, when prices of fuel go up, we will not run to our models and try to change the forecast for HST because it just doesn't happen. It just doesn't work that way. I mean that would assume that consumers have an endless source of income and that's not the case.
MR. GERALD SAMPSON: Just on taxes, people will say, okay, the price has gone from 75 cents, now it's 91 cents, therefore, there's a windfall of tax to the province and never mind the HST, is that a true statement?
MR. HENNEBURY: I don't believe it to be a true statement. As I mentioned, the price per litre for fuel tax is constant. So it doesn't matter if the price goes up 10 cents or 1 cent. The price per litre, the 15.5 cents that we get on a litre of fuel, does not change regardless of price. The HST portion will change slightly and, for example, you know, 88.9 cents versus 99.9 cents, we would get probably what, maybe about 0.7 cents more in HST if it goes up to 99.9 cents, but our theory is that we'll collect that 0.9 cents less on some other commodity because they have to spend it on gasoline. So the revenues of the province remain constant.
MR. CHAIRMAN: Mr. Graham.
MR. GRAHAM: I can appreciate that theory having some validity generally. I'm not sure, I don't hear you suggesting that you've modelled this and that there is some clear sense that this is happening. There's one envelope and only a limited amount of money and most of the money that people earn in Nova Scotia is spent on things that are taxed with HST, I appreciate that, but there are also RRSPs, there's insurance, which doesn't come under this category. There is a wide variety of things that somebody might choose otherwise to spend it on, they might just choose that could have been saved money for some other purpose that doesn't get spent at some later date.
So I'm not sure if I would state the case as strongly as you've stated it and I'm inviting you to respond, obviously, you're the more knowledgeable person about this area, but it doesn't seem to be a complete answer and if, instead of a $10 million sort of obvious windfall that the province gets, you're able to say, well, really, we estimate only $5 million because $5 million of that is being lost at some other end, then I think it's a more defensible argument. Dollar for dollar it is just one that I'm having trouble getting my head around.
MR. HENNEBURY: Right and I mean, you know, what you're saying is correct, that it doesn't always necessarily come from spending in other taxable items, but there's also a reduction in fuel that could occur and we have noticed that when prices increase significantly, there is a reduction in fuel. I think what folks do is when prices go up
significantly, they tend to spend less, they tend to drive less, or smaller cars, or that kind of thing.
MR. GRAHAM: Do you have any modelling that has been done on that question?
MR. HENNEBURY: Not specifically on that question.
MR. GRAHAM: Because in smoking, there's lots of modelling that has been done. Do you know if any of that modelling has been done nationally that could be shared with the province?
MR. HENNEBURY: I am not sure. I'm not aware of any specific studies that have been done to look at the elasticities of price. I mean we've observed it over the years ourselves, but we have not gone and done a specific study on that particular issue. I just want to point out that when we lose a sale of a litre of gasoline, when that happens, you lose not only the 0.9 cents, you lose the original 6.2 cents as well and that's a much greater offset than what you would have gained on the price increase. So that comes into play as well. So if fuel consumption was to go down 1 per cent, for example, the money we would lose on fuel tax revenue would probably outweigh any of the gain that we might make on increased HST revenues because we would lose that entire sale.
MR. CHAIRMAN: Mr. Taylor.
MR. TAYLOR: Just a related question, Mr. Chairman. When this province bought into the BST, or I guess HST as it's referred to, there was a monetary package that the federal government offered the harmonized provinces, the province that bought into that particular deal, to offset the difference between revenue accrued through the HST and what previous indicators were, I guess, or accurate data. What's the status of that monetary program now?
MR. HENNEBURY: Well, that program was a single lump sum that was paid to the province. I believe it was $239 million, I'm going on memory here now, so it was in that area and it was to represent four years and, in fact, we amortized it over four years. So essentially that money has been amortized and is gone.
MR. TAYLOR: So are you in a position to say now, are we winners or losers in terms of the monetary at present? I think you know where I'm going.
MR. HENNEBURY: I think, you know, I can deal with the facts and the facts are that what we collect in HST now is higher than what we collected in health services tax in 1996, which would have been the last full year we had it. However, I can't say that if the health services tax had stayed in place and that we were now under a health services tax and not HST that we wouldn't collect more under health services tax than we would under HST. Do you catch what I'm saying?
MR. TAYLOR: I've been following, yes.
MR. HENNEBURY: So what I'm saying is we do nominally collect more now than we did in 1996. I don't know whether or not if we were in a health services tax world now, we wouldn't collect more than we do now.
MR. TAYLOR: Well, if I might, I think if you do the math, the health services tax plus the GST would be more. Now, you tell us price increases do not create an HST windfall so then we couldn't apply that logic if the tax was more?
MR. HENNEBURY: No, but I guess what I'm saying, if you would give me a second, is that the bases are completely different, absolutely completely different.
MR. TAYLOR: Yes, it's designed that way?
MR. HENNEBURY: That's right and so you can't compare them in that simple of terms.
MR. CHAIRMAN: Mr. Parker.
MR. PARKER: I had just one quick question in the same line I guess. You mentioned when HST is going up on fuel and maybe it's not affecting the price, but maybe it is, or the amount of taxes coming overall to the province on HST and, there are zero-rated items out there like food, you know, maybe people have to cut back on the amount of food they can buy if they have to pay more for gasoline which is creating more HST revenue. That's a possibility, isn't it?
MR. HENNEBURY: It's a possibility.
MR. PARKER: They're paying HST there, but they're not making enough on zero-rated items that they absolutely need. When that happens, then all of a sudden Nova Scotia is getting more HST off fuel. Is that reflected in the formula in the comparison to other provinces maybe where it hasn't happened? In other words, is Nova Scotia getting its fair share back out of the three-province arrangement?
MR. HENNEBURY: Yes.
MR. PARKER: Because all of a sudden we're paying more HST?
MR. HENNEBURY: Yes.
MR. PARKER: And not on zero-rated items?
MR. HENNEBURY: Yes. Part of the formula, the biggest part of the formula is called the consumer expenditure base. One of the commodities in the consumer expenditure base is motor fuels. So it specifically captures motor fuels in the economic base upon which the declared revenue pool is shared. So if there's more spending in Nova Scotia or Newfoundland or New Brunswick on motor fuels, the formula captures that spending and the allocation is appropriately changed in order to ensure that each province gets its share.
MR. MACKINNON: Mr. Chairman, perhaps a fact sheet on this issue of the HST, since it came into effect, would be helpful for members of the committee. It would save us a lot of speculation.
MR. CHAIRMAN: Gentlemen, is that okay?
MR. HENNEBURY: Yes, could I just clarify, a fact sheet as it's respecting fuel or . . .
MR. MACKINNON: No, just in general . . .
MR. HENNEBURY: Just in general.
MR. MACKINNON: . . . because there seems to be some wide-ranging policy suggestions here.
MR. CHAIRMAN: Gentlemen, continue with the presentation.
MR. HENNEBURY: I have one last slide, and then I do have a couple of comments that I heard from the discussions this morning that I think I would like to address and would answer some questions. This is a breakdown, a little less scientific than what Mike presented because this is based on me filling up my car on July 4th, it was at 88.9 cents per litre. It happens to be the same price that Mike found on Tuesday when they do their normal survey. Of that, the gas price, excluding taxes, would be 51.8 cents per litre, and that would be all those margins that Mike pointed out in the slide earlier. There's a federal excise tax of 10 cents per litre and a provincial gas tax of 15.5 cents per litre. That brings the price, before HST, to 77.3 cents per litre. The GST would apply at 7 per cent, and the HST at 8 per cent. You can see the amounts there, for a total price at the pump that the consumer would pay of 88.9 cents per litre.
That's kind of the breakdown of the price at the pump, in terms of taxes and what goes to the distribution chain. About 58 per cent of it goes to the distribution chain, and the remainder would be taxes of one form or another, be they federal excise, provincial excise or HST.
A couple of the points that I had heard comments on earlier, as I was listening, that I thought I would take some time to address, the HST, as I mentioned, is a harmonized tax. It's a tax we share with the three other provinces and the federal government. So when we talk about 15 per cent, it's important to realize that it's really only 8 per cent that we're talking about as Nova Scotia's share, the other 7 per cent is the federal government's share, and it applies in all provinces, not just the three harmonized.
MR. TAYLOR: Mr. Chairman, on a point of order, share with three others or two others?
MR. HENNEBURY: Two others. We share that with the two other provinces and the federal government. So the 7 per cent is a national tax.
[11:15 a.m.]
One point that I wanted to bring out that's not in the presentation, with respect to HST, is that I mentioned it was federal legislation, and we share in the revenues under an agreement with the two other provinces and the federal government. That agreement stipulates that the base must be common between the three provinces. That means that Nova Scotia does not have unilateral authority to change the HST base. Excise taxes are part of the HST base and, therefore, we could not change the HST base to exclude excise taxes from the calculation of HST. We would need the agreement of the two other provinces and the federal government to effect that change.
I know that some of the comments earlier were heading down the road of, is that an option? I just wanted to point out that under the terms of the current agreement, the way it's structured, I don't believe that to be an option, because the agreement is structured such that we would need unanimous agreement to change the base.
MR. TAYLOR: Just a quick question on that. Is there not a proviso for notification, if a province decides to effect the change immediately? Is there not another option that you have to go 18 months or something with . . .
MR. HENNEBURY: No, there is not. The way the agreement works is that any province can present a base change at a regular meeting of the Tax Policy Review Committee, which is a committee of the federal government and the three provinces, but that base change would still require the unanimous approval. The 18 months that you're referring to is if the province wanted to opt out of the HST agreement, they could give 18 months' notice to do that. (Interruptions)
MR. GERLAD SAMPSON: Nova Scotia, New Brunswick and Newfoundland are the three provinces.
MR. HENNEBURY: That's correct.
MR. GRAHAM: A couple of quick ones. The rebates on fuel tax to farmers and fishers, what's the total value of that in the province? My second question, I'll throw that in with it, what is the total amount of money that that 8 per cent provincial portion of the HST, what's the total amount that that represents to the provincial coffers?
MR. HENNEBURY: The HST collected on fuel products?
MR. GRAHAM: Yes. Our portion, the provincial portion, what does that bring to our general revenue? The first question was, what is the size of the rebates that go out to our primary industries and others?
MR. HENNEBURY: The first question, unless (Interruption) It's close to $30 million.
MR. GRAHAM: The HST, the 8 per cent?
MR. HENNEBURY: No, sorry.
MR. GRAHAM: Or that's the rebate?
MR. HENNEBURY: That's the rebate on the fuel taxes, not the HST. (Interruptions) That's the value of the rebate of the 15.5 cent per litre tax to those groups.
MR. GRAHAM: How much of that, just to be clear, 15.5 cents per litre do they get back, all of it?
MR. HENNEBURY: In most cases, all of it, yes. (Interruptions) In all cases, all of it. (Interruptions) We're talking two different things. Actually that slide is up.
MR. GRAHAM: So, in effect, for farming equipment that uses gasoline, the price that our farmers are having to bear is 15.5 cents per litre lower than others.
MR. HENNEBURY: Correct. That's not through the tax credit mechanism, it's through a rebate of the fuel taxes or exemption.
MR. GRAHAM: And the other question, about the HST value?
MR. HENNEBURY: I can only give an estimate, because HST is not tracked on a commodity basis. For example, I'll give you another analogy, if I may, I fill up constantly at the rotary Esso because it's on my way home. They have a complete store there that sells Tim Horton's and everything else. When they submit a GST return, all they do is say, we've collected this much GST and these are our input credits. We don't know how much of that GST is solely on fuel and how much of it is on the other products. There's a lot of those kinds of stores around now, just about every gas station is a combination of a gas station and other things. You also have other players, like Emera and Canadian Tire. Their sales would be combined with the sales of all of their other things. So there's no way to determine exactly how much HST is collected in the province from any particular commodity, that includes gasoline or chocolate bars or anything.
Based on Statistics Canada data that we use in the revenue-sharing agreement, we can estimate that the HST on fuel is in the area of $45 million. I can't tell you that that's an exact number, but if you look at what's spent on fuel by consumers, and this would be net of input tax credits, it would be about $45 million.
MR. GRAHAM: Just as a follow-up, one last thing. I'm assuming that other provinces have the rebate system for farmers and fishers and the like, forestry. (Interruptions)
MR. DEWOLFE: Mr. Chairman, I noted that you looked my way when you were talking about some confusion about separating the taxes, and perhaps I didn't make myself clear. You talked in terms of the excise tax, that it's very difficult to separate the taxes. But that's not to say that the federal government can't, at some point, as an end result, return some of that money to the province. When I was talking about taxes on taxes, I still have a big problem with tax on tax, particularly where it has to do with the fuel - there's so much tax involved.
In 2002, the federal government collected $4.7 billion in excise tax, and during that same year they collected $2.25 billion in GST. Of that $6.95 billion total gas taxes, the GST and the excise tax combined, $329 million represented the GST on the excise tax only. So that's the tax-on-tax portion that I have a big problem with, that $329 million that they collect on the tax - the tax on tax.
I would like to give notice that at some point, when we're through with our deliberations, I would like to make a motion that this committee, and hopefully supporting me, pressure the federal government to roll that $329 million back to the respective provinces, that tax on tax. It was indicated - is it legal? Maybe. It may be legal. Is it fair? I don't think so. I don't think it's fair. I believe that this committee should at least take a stand on it and pressure the federal government to return that tax on tax to the provinces.
MR. CHAIRMAN: We'll hold that motion for today, and at the end of our session we'll bring it forward. You've registered that for a request to the committee at that time.
MR. DEWOLFE: She has it recorded, thanks.
MR. CHAIRMAN: Russell is next.
MR. MACKINNON: Mr. Chairman, perhaps to touch on what Mr. DeWolfe has indicated, it would be helpful to have somebody from the federal tax department come before this committee to give us a bit of a breakdown.
MS. STEVENS: The CCRA.
MR. MACKINNON: Yes, and as you know, we now have that legal authority to do that. Maybe before we get down to voting, we'd be able to have a full analysis of that.
However, on the other issue of the amount of HST that's collected, my numbers seem slightly different than yours. If you take the federal excise tax and the provincial gas tax, that's 25.5 cents per litre, and if you take 15 per cent on that, that works to about 3.7 cents per litre. Correct? Okay, there are 3.8 billion litres per year, and that works out to 140 . . .
MR. HENNEBURY: That's only 1.5 billion litres per year.
MR. DUDA: It's 3.8 billion litres of fuel sold in the province and not all of that is taxed under HST.
MR. HENNEBURY: A good portion of that would be home heating fuel.
MR. MACKINNON: Okay, so what percentage? The gasoline, so it would be the $1.2 billion.
MR. HENNEBURY: I believe we sell in the area of . . .
MR. MACKINNON: Okay, that clarifies it, then. So your figure around $40-some million is correct.
MR. HENNEBURY: Some of that would be business related and input tax credits would be involved as well. So the figure I quoted would have been net, the consumer side, the net of input tax credits.
MR. MACKINNON: The $40 million.
MR. HENNEBURY: Yes.
MR. TAYLOR: Mr. Chairman, a question - I gave you a signal earlier. I think it's fundamentally . . .
MR. CHAIRMAN: Excuse me, Mr. Taylor. Certainly, if I've neglected to recognize you, I apologize not only to you today, but to the committee at large. You have the floor, sir. Carry on.
MR. TAYLOR: I think it's very important that this committee be provided with accurate data indicating the amount of revenue that has accrued to the harmonized region's pool from Nova Scotia by applying the HST to the provincial and federal taxes. I feel that before we can go where perhaps members may want to, whether it's federal or provincial, we have to know that amount going to that pool by way of this particular commodity, if you will, today, gasoline and diesel. The motorists and the truckers out there are paying 15 per cent on top of the tax after tax after fuel up. We've all been going in that direction, but I really think we have to know, as a committee, what amount Nova Scotia is contributing to the harmonized region's pool by way of that - if it's 3.1 cents per litre or whatever it is, on top of the 25.5 cents per litre, combined federal and provincial taxes.
Before we could ever make any type of a recommendation, I think we have to clearly know what that amount is. You say you don't track the various commodities but, based on the best information you have, I really believe we should have that information as a committee.
MR. HENNEBURY: I have a couple of points of clarification. You're right, we can't give you an exact figure on that. We can go and look at our data and probably give a fairly decent estimate of how much Nova Scotia would collect as a result of charging tax on the tax, if you will. I'm not sure I understand your question about contributing to the pool. What we can do is how much Nova Scotia gets, or estimate how much Nova Scotia gets as a result of tax on tax.
MR. TAYLOR: Didn't you say earlier on - why I mentioned that source, you were trying to explain how the formula actually worked. Generally it was going into the harmonized region's pool, the HST. Well, then, I would think the HST from that tax is going into that pool as well.
MR. HENNEBURY: It is, but the share that we get from that pool is designed to represent the actual collections in Nova Scotia from that. So while it's not tracked exactly, the formula is designed to ensure that Nova Scotia's share of that pool replicates or is a proxy for actual tracking.
MR. TAYLOR: If we don't have any mechanism or means, it's meaningless to make a recommendation unless we have . . .
MR. HENNEBURY: As I mentioned, we can give you a good estimate of how much Nova Scotia actually receives from applying HST to the fuel taxes.
MR. CHAIRMAN: Carry on with your presentation, but I would just like to remind the presenters and committee members that we have to bring this to a close shortly. We have approximately 30 minutes to wrap it up.
MR. HENNEBURY: That was actually my last slide.
MR. GERALD SAMPSON: I just wanted to ask - probably in the same vein as what Mr. Taylor is asking for before we vote on anything at the end of our deliberations - for the figures that Mr. DeWolfe has presented, and the same with the figures you presented yourself. I would call for the legitimization of the figures, legitimate figures that we would be presented with so that we would know what we're voting on. I'm not disputing the figures that were presented, but we want to have legitimate figures . . .
MR. DEWOLFE: . . . I served notice, I put a motion forward at the end of - not the end of this meeting, but the end of our session . . .
MR. GERALD SAMPSON: No, no, I understand that, but I just want to have the figures that are legitimate that are presented to us so that we can base our decision on actual facts.
MR. CHAIRMAN: Thank you, Gerald. Howard, do you have a question?
MR. EPSTEIN: I do now, if you're not going to continue through. There's a lot of writing in the financial press about how rises in gasoline prices are inflationary. I'm wondering if there's any comment on this that you would like to make for us, or whether there's anything that you might give us in writing at a future date?
MR. HENNEBURY: I could probably supply, at a future date, some information around that. Yes, significant rises in fuel prices are inflationary. They factor into the prices of a number of commodities that we buy. It's used in just about every production process, and when the price of fuel rises significantly, the prices of other products also rise significantly. I can undertake to supply the committee with some . . .
[11:30 p.m.]
MR. CHAIRMAN: That would be a big help, thank you. Mr. MacKinnon.
MR. MACKINNON: Just a short snapper, Mr. Chairman, not directly related, but indirectly it does in relation to Nova Scotia Power because of its purchasing a lot of oil products. The recent Supreme Court decision that ordered the $150 million in lost tax credit, what percentage of that would go to Nova Scotia out of that $150 million?
MR. HENNEBURY: That was not an HST issue.
MR. MACKINNON: No, I realize that.
MR. HENNEBURY: That was an income tax issue.
MR. MACKINNON: Yes, but it's not part of that?
MR. HENNEBURY: I can't say for certain how much of that.
MR. MACKINNON: I can take that on notice if you would be kind enough.
MR. HENNEBURY: But it would have been split probably . . .
MR. MACKINNON: Would have been 45/55?
MR. HENNEBURY: Probably a little greater than that towards the federal government. Probably more like two-thirds/one-third.
MR. MACKINNON: Okay, just general figures. Thank you, Mr. Chairman.
MR. CHAIRMAN: Any further questions for the presenters?
MR. MACKINNON: Just thank them for a very . . .
MR. CHAIRMAN: Yes, we will, but before we dismiss you, I think, Mr. Taylor, you have a motion that we're going to address. Now, we can do that in two ways. We can dismiss the committee and address it through letter form or we can revamp your motion and ask them to bring back that information because we're going to invite you back, if it's the wish of the committee, on July 27th, possibly in the afternoon, because of the information that you have to clarify or bring to the committee, different things that we discussed today, because that's when we have the regulators from P.E.I. and hopefully the federal government coming possibly in the morning. So we can make an afternoon for you folks to clarify all the requests of the committee. So I will turn it over to Mr. Taylor. Would you like the committee dismissed and address it?
MR. TAYLOR: Mr. Chairman, I think the committee gave us an undertaking that they would provide us with that information. I'm fine with that.
MR. CHAIRMAN: So we don't need to deal with it formally, very good. I would like to formally thank you. It has been a wonderful morning and you provided a lot of information to create a foundation for us to go out and to address Nova Scotians. So thank you once again, thank you all, and hopefully we'll see you on July 27th and probably a few of you as we travel through the province. (Interruption) Yes, we dealt with our business so we'll adjourn.
MR. TAYLOR: Mr. Chairman, our next meeting is the hearing down in Yarmouth?
MR. CHAIRMAN: That's correct, yes, see you all there.
[The committee adjourned at 11:33 a.m.]
