Canada’s extended fuel-tax relief is projected to reduce federal revenues by $4.94 billion this fiscal year, roughly $350 million less than Ottawa previously estimated, while the program’s projected household savings depend on an assumption that all tax relief reaches consumers.
A new Parliamentary Budget Office assessment, released Thursday, puts the total cost of suspending and temporarily reducing federal excise taxes on gasoline, diesel, and aviation fuel at $4.943 billion for 2026–27.
That compares with the $5.3 billion in total tax relief projected by the Department of Finance when it announced the extension on September 2.
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The watchdog estimates that the original tax suspension, covering April 20 through September 7, will cost $2.247 billion. The subsequent extension and partial restoration of excise taxes through March 31, 2027, account for another $2.695 billion.
Gasoline represents the largest component, with an estimated $3.76 billion fiscal impact. Diesel accounts for $1.065 billion, while aviation fuels account for $118 million.
Household savings, projected benefits
The PBO estimates that the combined measures will generate average tax savings of $276 per economic family, but that figure is conditional on the entire benefit reaching consumers.
The agency’s model assumes 100% of the excise-tax reduction is passed through to families, rather than retained elsewhere in the fuel supply chain.
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The report acknowledges that corporations could capture some of those savings, potentially changing their distribution among households and businesses.
That distinction matters because the fiscal cost measures the impact on government finances, while estimated family savings depend on how businesses respond to the tax reduction.
The federal excise tax is generally collected from manufacturers or wholesalers and incorporated into retail fuel prices. Eliminating the tax therefore does not, by itself, establish the final amount saved by motorists.
The PBO’s distributional analysis also indicates that the tax relief provides substantially different dollar benefits across income groups. Families earning at least $182,008 annually are projected to save an average of $468 over the full relief period. Those earning $41,064 or less are expected to save $132.
The highest-income fifth of economic families accounts for approximately 34% of projected total savings, equivalent to $1.675 billion. The lowest-income fifth receives roughly 10%, or $473 million.
Middle-income families, earning between $73,039 and $114,423, are projected to save an average of $251.
The pattern reflects higher fuel consumption among higher-income families, according to the PBO.
However, unequal dollar benefits are not a new finding. In its May assessment, the watchdog similarly found that wealthier households received greater absolute savings, while lower-income households benefited more relative to their incomes.
The October update extends the analysis to the longer relief period and incorporates newer Statistics Canada income data. It also changes the unit of measurement from households to economic families, including individuals living alone. Consequently, the new $276 average cannot be directly compared with May’s $124-per-household estimate as a measure of the extension’s additional benefit.
The latest assessment also excludes behavioural changes in fuel consumption resulting from the tax reduction, unlike the earlier analysis, which modelled a gasoline-consumption response.
Tax relief adds to Ottawa’s operating fiscal cost
The policy was originally introduced in April as a temporary response to higher fuel prices. Ottawa subsequently announced an extension on September 2 and introduced Bill C-38, the Canadian Fuel Affordability Act, on September 21.
Under the proposed schedule, federal excise taxes remain suspended through January 31, 2027. They are then reduced to half their regular rates for February and March before returning to full rates on April 1.
For gasoline, the suspension removes a 10-cent-per-litre federal excise tax. For diesel, it removes 4 cents per litre.
The PBO also expects the fiscal impact to be classified as an operating measure rather than a capital investment under the government’s Capital Budgeting Framework.
Although its updated projection is lower than Ottawa’s September forecast, the watchdog still estimates an almost $5 billion deterioration in the federal budgetary balance for 2026–27.
