Fraser Forum

Alberta’s new carbon policies are not revenue neutral

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This week, the Alberta government unveiled its new strategy on climate change, which includes a carbon tax that will be implemented gradually, reaching $30/tonne in 2018.

Premier Rachel Notley (pictured above) has gone on record stating that the proposed climate change plan is “revenue neutral.” This is simply not accurate. The government’s carbon tax plan is not revenue neutral, and would represent a significant net tax increase on the Alberta economy.

“Revenue neutrality” is a clearly defined term, used frequently in discussions of tax policy. The meaning is this: a new tax is considered revenue neutral only if all revenues collected by that tax are returned through offsetting tax cuts. This means that there is no overall increase in government revenues.

If Alberta’s carbon tax was in fact revenue neutral, the plan would include a clear list of what taxes are going to be reduced to ensure that government revenues do not grow as a result of the implementation of the carbon tax. It does not. Instead, the plan lays out a laundry list of potential ways the government might spend the money including “green infrastructure like public transit.” This is better described as a “tax and spend” policy approach.

Premier Notley has defended her claim that the tax is revenue neutral on the grounds that “all of the money will be re-invested in Alberta.”

This is a novel and perplexing interpretation of the term.

Under this definition, nearly any conceivable tax increase is “revenue neutral” as long as the money is used to fund any government priority that is deemed to be an “investment’ in Albertans. A simple income tax increase with the money being used to fund health, education or any other government initiative would qualify as being “revenue-neutral” using this definition—even though the policy package would not in fact be “neutral’ with respect to revenue.

To make matters worse, not only is the carbon tax not revenue neutral, but  harmful taxes like corporate or personal income taxes that proponents of genuinely revenue neutral carbon taxes frequently suggest should be cut to offset carbon taxes and ensure revenue neutrality, have actually gone up for Albertans over the past few months.

As Albertans consider the government’s climate change proposals, they deserve clarity about the nature of the government’s plan. Describing the carbon tax as “revenue neutral” is misleading. The premier should clarify her remarks, clearly state that the plan is not revenue neutral, and articulate how the plan represents a substantial net tax increase on Alberta’s economy.

This will provide the framework for an informed debate about the pros and cons of the government’s proposals.


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