GST revenues from carbon-pricing—likely another tax grab
This week, as Canadians were sliding into their holiday mindset, the Parliamentary Budget Officer (PBO) released a report estimating the GST revenues collected by the federal government through existing carbon-pricing schemes in four provinces (British Columbia, Alberta, Ontario and Quebec). We call this the federal carbon tax take.
The Goods and Services Tax (GST) is a 5 per cent federal tax applied to the final price of most goods or services. Buy $100 worth of a taxable good and (ding!) another $5.00 is tacked on for Ottawa. But many may not realize that action taken by the federal government can inflate the cost of goods or services, and boost the amount of money collected from the GST.
And that brings us to carbon-pricing.
Because carbon-pricing will be passed (in whole or in part) to consumers, it will raise the cost of goods (including gasoline, diesel and natural gas) as well as services. The application of the GST to these higher prices will therefore provide the federal government with increased GST revenue. As a result of carbon-pricing, consumers will pay higher prices and both federal and provincial governments will see their revenues increase.
The PBO report finds that the GST revenues from existing carbon-pricing in B.C., Alberta, Ontario and Quebec will allow Ottawa to collect between $501 million and $580 million more over the 2017 and 2018 fiscal years.
Earlier this year, the Trudeau government introduced new legislation requiring all provinces to adopt their own carbon-pricing system or have carbon-pricing imposed on them. The so-called national carbon-pricing plan imposes a levy of $10 per tonne of emission in 2018, increasing by $10 every year to $50 per tonne in 2022.
The federal government has long insisted that carbon-pricing systems would collect no revenue for the federal government, with all the revenues staying in the province where they are collected. However, the PBO report contradicts this claim as it shows there’s considerable financial benefit for Ottawa from the GST revenues. It should be noted that the estimated GST revenues in the PBO report is bound to increase as the carbon levy will grow in coming years, again, reaching $50 per tonne in 2022.
But to make carbon-pricing revenue neutral and meet the federal government’s commitment, all the revenues from carbon-pricing, including the amount collected through GST, should be used to lower other federal taxes, so that the net effect on federal government revenues would be zero. However, there has been no indication that the Trudeau government intends to do this.
Ultimately, the PBO report seems to expose carbon-pricing as yet another tax grab by federal and provincial governments.