Fraser Forum

B.C. budget acknowledges the carbon tax was not revenue neutral

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Our recent study examining British Columbia’s “revenue neutral” carbon tax found that, contrary to the provincial government’s promise, the carbon tax was not revenue neutral and had actually raised taxes on British Columbians.

While the government initially dismissed our findings, Tuesday’s budget essentially acknowledges the carbon tax wasn’t in fact revenue neutral and takes steps to correct the problem.

As detailed in our study, the carbon tax ceased being revenue neutral in 2013/14, despite the B.C. government’s assurance to taxpayers that it would be completely offset with new reductions to other taxes.

In 2013/14, the government stopped relying solely on new tax reductions in its revenue neutral calculations and instead began using pre-existing tax credits to give the appearance of revenue neutrality. Some of these pre-existing tax credits were first introduced back in the 1990s. Once the pre-existing tax credits were properly removed from the government’s revenue neutral calculation, B.C. taxpayers were on track for a net tax increase of nearly $900 million from 2013/14 to 2018/19.

In this week’s budget, the B.C. government removed some of the pre-existing tax credits identified in our report from the revenue neutral calculation and implemented two new tax measures.

Specifically, the budget removed three of the six pre-existing tax measures from the revenue neutrality calculation including two tax credits for the film industry and a tax credit for the digital media industry. The budget added a new cut to the small business corporate income tax rate and reduced (and will eventually phase out) the provincial sales tax (PST) on electricity.

The addition of the new tax measures are projected to make the carbon tax revenue neutral starting in 2017/18. However, based on our calculations, British Columbians are still on track to experience a $599 million net tax hike from 2013/14 to 2016/17, as the carbon tax does not appear to be revenue neutral in those years.

Nevertheless, we commend the government for taking steps to make the carbon tax revenue neutral again.

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