NDP-Green carbon tax hikes likely won’t be revenue neutral
Given the recent agreement between NDP and Green Party, which may soon see the two parties form a coalition government in British Columbia, changes are likely coming to B.C.’s carbon tax. The tax may increase by $5 per tonne each year from its current rate of $30 per tonne with no indication that the increases will stop at a certain rate. The coverage of the tax may also expand.
Crucially, there’s no commitment in the agreement struck by the NDP and Greens to make the carbon tax increases revenue neutral. Revenue neutrality was made a legal requirement when the tax was first implemented in 2008. While the carbon tax became only partially revenue neutral in 2013/14, the NDP and Greens appear poised to move even further away from revenue neutrality. Indeed, the NDP’s election platform commits to using new carbon tax revenues for increased government spending on rebate cheques and “climate change solutions.”
As we noted in a recent study, which criticized the previous Liberal government for breaking its revenue neutrality promise to British Columbians, revenue neutrality is an essential component of a carbon tax because offsetting cuts to economically damaging taxes—such as personal and corporate income taxes—can help offset the economic costs of a carbon tax. The lack of revenue neutrality will become increasingly detrimental for B.C.’s competitiveness as the carbon tax rises in the years ahead.
In fact, rather than cutting economically damaging taxes, the NDP and Greens are set to increase them, with plans to raise both personal and corporate income tax rates. This will only exacerbate the overall negative impact of the carbon tax on B.C.’s economy.
The proposed changes from the NDP and Greens highlight how the political marketplace can get in the way of ideal carbon taxes.