Oil Prices: Jump in Concern about Economic Impacts, Strong Support for More Tax Cuts on Fuel Efficient Vehicles

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1 Oil Prices: Jump in Concern about Economic Impacts, Strong Support for More Tax Cuts on Fuel Efficient Vehicles BDO Dunwoody Weekly CEO/Business Leader Poll By COMPAS in Canadian Business For Publication March 27, 2008 COMPAS Inc. Public Opinion and Customer Research March 27, 2008

2 1.0. Introduction The CEO s and business leaders on COMPAS business panel are not Cassandras about the future pricing of oil. They foresee U.S. $ 113 a barrel by 2010, not $ 150 as forecast by some analysts. But panelists have become concerned about the impact of oil prices on industry, consumers, and the economy as a whole. There has been a jump in concern. As for necessary government action, panelists believe at least as much as ever that the focus should be on tax incentives in support of fuel-efficient vehicles. Meanwhile they oppose at least as much as ever reductions in taxation on fuel. These are the key findings from this past week s Internet survey of CEOs and business leaders on the COMPAS panel. The weekly business survey is undertaken for Canadian Business magazine under sponsorship of BDO Dunwoody LLP Business Leaders Predict Price of Crude Oil to Remain Above $100 a Barrel Panelists are expecting the price of oil to rise incrementally to U.S. $113 a barrel by the year 2010, as shown in table 1 below. This is a far cry from the U.S. $79 they were predicting last summer. 2

3 Table 1: (Q1) Crude oil was worth $US a barrel on Monday, March 10, 2008, and the price of crude oil has recently been as high as $US 109 a barrel. Please give your prediction of what it will be worth (rounded to the nearest dollar) March 2008 July Mean DNK Mean DNK In six months In one year In two years Some volunteer a concern that oil companies in Canada are reaping unfair advantage from the jump in world oil prices. As one respondent put it, Canadians paid $1.00 CAD per gallon three years ago when we had a $0.65 dollar. The current pump prices are the result of oil companies taking advantage of us Rising Oil Prices Will Hurt Economy, Consumers, and Perhaps Especially Industry Panelists are expressing a sharp increase in concern about the economic impacts of oil prices compared to their views in 2007 and 2005, as shown in table 2. They feel that industry will suffer but that the jump in oil prices will also hurt consumers and the economy in general. While panelists as a whole expressed concern about the economic fallout, opinion was not unanimous. High profits have benefited oil companies, 1 Wording in July 2007: Crude oil was worth $US a barrel on Tuesday, July 24, 2007, and the price of crude oil has recently been as high as $US 77 a barrel. Please give your prediction of what it will be worth (rounded to the nearest dollar) 3

4 observed one CEO, but governments and taxpayers have also profited. Oil companies [are paying] huge taxes. Governments have had as much benefit from that as the oil companies and, indirectly so have taxpayers through more and better programs. Table 2: (Q3) Using a 7 point scale where 7 means a significant negative impact and 1, the opposite, to what extent are the current rises in oil prices apt to impact RANDOMIZE Mean DNK Industry March May April The economy in general March May April Consumer spending March May April Wording in May 2007: Using a 7 point scale where 7 means a significant negative impact and 1, the opposite, to what extent has the recent rise in oil prices impacted [ROTATE] 4

5 4.0. Cutting Taxes on Fuel Efficient Vehicles Still Best Solution to Current Oil Situation among Respondents Panelists feel that cutting taxes on the purchase of fuel efficient vehicles is the best course of action for the government, as shown in table 3 below. Considerable attention should also be placed on subsidies to transit systems. Table 3: (Q2) On a 7 point agree-disagree scale where 7 means agree a lot, please score each of the following opinions about what governments should do [RANDOMIZE] Mean DNK Cut taxes on the purchase of fuel efficient vehicles March May April May Increase subsidies to transit systems March May April May Stop applying taxes above a certain price per gallon, for example above 85 cents a litre March May April May

6 Mean DNK Leave gas taxes alone as a way of cutting fossil fuel emissions March May April May Cut taxes on gas and raise taxes on new gas guzzling automobiles March May April May Do nothing because the problem will stabilize or go away March May April May Permanently cut taxes on gas and look for other sources of government revenue March May April May Over the past four years, support for transit system subsidies has increased more than support for any other government initiative, as shown in table 3. On 6

7 the 7 agreement point scale, mean support for transit subsidy increases rose from 3.9 in May 2004 to 4.8 in March The biggest jump in support occurred in with a smaller apparent upward bump in recent months. Today, almost two-thirds of panelists score their support for transit subsidy increases in the 5-7 range on the 7 point scale. Panelists, meanwhile, have somewhat negative feelings about cutting gasoline taxes and finding replacement sources of government revenue elsewhere. Today, opposition to doing so outdraws support by about 2:1 with 59% scoring 1-3 on the 7 point agreement scale and 30% score 5-7. The nuanced opinions of panelists emerge the following verbatims: Hardly any city in Canada has an efficacious public transit system [compared to] London or New York, where perhaps the majority of white collar workers walk and/or use public transit. The Federal Government should put a 20% public transport infrastructure tax on all gasoline sales within 50 kms of urban areas with population in excess of 25,000 people. The PTI tax revenue should be devoted 100% back to those communities for development of public transportation. Subsidize hybrid cars so the premium in price is easier to handle. We finally have to develop alternate sources of energy such as geothermal. Tax the source not the user. Tax imports from inefficient countries use this tax to help our economy. In the long term we should remember that it was concerns about oil in the 70 s that got us focused on fuel efficiency and building smaller cars. The price signals created by the possibility that oil costs are going to be sustained at higher rates for a longer period of time will drive real innovation. This is where the government can have a real impact by supporting those Canadian companies that are developing 7

8 new technology used for building renewable energy sources and products that use less energy. This issue is similar to the Canadian dollar. Let it go where the market wants and business and consumers will adapt and thrive. Any artificial interference will simply delay the problem and will make us less competitive globally Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted March 11-13, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 133 are deemed accurate to within approximate 8.5 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D. and Tamara Gottlieb. 8