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Carbon tax is far from 'revenue neutral'

By John Williamson
web posted March 24, 2008

Energy prices are going up.  Oil has hit record highs, resulting in higher transportation costs.  Food prices are increasing.  It is also becoming more expensive to heat homes and drive the family vehicle.  And Canada doesn't even have a carbon tax.  Yet, environmentalists are calling for one all the same, saying it will be economically painless.  This is nonsense.  The world is not melting but our standard of living soon will be if global-warming alarmists have their way.

Liberal Leader Stephane DionUntil now Canada's two main political parties, the governing Conservatives and Opposition Liberals, had both publicly opposed a carbon tax.  Recently, however, Liberal leader Stéphane Dion announced he now favours a national tax on energy to curb consumption.

The theory behind any tax intended to alter behaviour is that if you tax something, you will get less of it.  Carbon taxes are meant to get Canadians to use less energy.  In fact, all they will accomplish is to make Canadians pay more.

Quebec was the first Canadian jurisdiction to enact a "carbon tax" by charging just under 1¢ a litre.  The provincial government had said business would pay the levy, which will raise about $200-million a year and be spent on green technology.  Instead, individuals are paying the tax.  Invoices from one natural gas company labelled the added costs as "Contribution -- Green Fund."  The tax is also embedded in Quebec gasoline prices, which because of various taxes are among the highest in Canada.

Costs will be even higher for families in British Columbia.  The province's new carbon tax on all fossil fuels, including gas, diesel, natural gas, coal, propane and home heating fuel, will hit consumers and businesses.  The carbon tax begins at $10 per tonne and increases by $5 a year until it hits $30 a tonne in 2012.  The levy will raise $1.85-billion over three years and at least another $15-billion by 2020.

Gas sells in Vancouver today for about $1.19 per litre, whereas in southwestern Ontario the price is $1.09.  The difference is due to taxes.  Starting July 1, the gas tax in B.C. will increase by 2.5¢.  That levy will rise to 7.6¢ by 2012.  (These amounts include the additional GST tax-on-tax surcharge.)  B.C.'s carbon tax means even higher pump prices, costlier home heating bills and more expensive products, including food.

The government says it will be "revenue neutral" because it is lowering income taxes at the same time.  But it certainly isn't neutral for families.  A two-income family earning $90,000 with two kids will save $85 this year in lower personal income taxes.  Yet, according to the B.C. budget, that same family will pay an additional $100 in gas taxes and another $35 in home heating costs.  B.C.'s tax shifting translates into a middle-class tax increase.

Mr. Dion similarly favours a so-called revenue neutral tax.  But as in B.C., it won't be neutral for taxpayers: Higher energy prices will hit families with kids the hardest.  And what will it accomplish?  Premier Gordon Campbell's goal is to reduce the province's CO2 emissions by 40 million tonnes by 2020.  Yet, the current carbon tax policy is expected to reduce greenhouse gases by only three million tonnes, about 7.5% of the total.  If the price of a 7.5% CO2 reduction is more than $15-billion, taxpayers can only imagine what it will cost to cut the other 92.5%.  And taxpayers remember the previous federal Liberal government spent $6-billion to reduce emissions and the country's greenhouse gases instead grew by 33%.

In 2000, the price of a litre of gasoline in Canada was 72¢.  Five years later, it jumped to 92¢.  Over that period, gas consumption increased 1.7% a year.  Today, the average pump price is roughly $1.12 per litre.  That's a 55% increase in eight years and people are still driving.

Will Mr. Dion follow B.C.'s example and implement a carbon tax that won't alter behaviour? Or is this about sounding green and doing nothing in office?  Canadians should hope it's the latter. ESR

John Williamson is federal director of the Canadian Taxpayers Federation.

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