Fraser Forum

Rolling back carbon taxes—here’s how

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When I talk about rolling back carbon taxes, I get a range of replies, ranging from “why do you want to destroy the Earth” to “you can’t do that because Trudeau has federalized it!”

Another reply I get (usually said sarcastically) is “Oh, so the Fraser Institute wants us to raise other taxes to make up for the shortfall in revenue? Do your supporters know you want higher taxes?”

My answer to that one is usually to note that Canada's fiscal problems are not that our governments need more revenues, it’s that governments spend too much, sometimes doing things that virtually no one wants done, and many times doing things that could be done as well or better by the private sector.

That led me to a thought experiment based on a study I did on carbon tax implementation in Canada (calculations by author).

In Alberta, the carbon tax in 2018/19 is expected to raise about $1.4 billion. Provincial revenue 2018/2019 is estimated at $47.9 billion. Hence, carbon tax revenues could be offset by cutting provincial spending (assuming all revenues are spent) by 3 per cent. No replacement tax required.

In Ontario, the government expects to rake in $2 billion per year through its cap-and-trade program, a form of hidden carbon taxation. Ontario’s 2018 spending is $158.5 billion. So, a cut of 1 per cent in Ontario spending could offset the loss of carbon tax revenues. That hardly seems like a draconian prescription.

In British Columbia, where the vaunted “revenue-neutral carbon tax” stopped being revenue-neutral in 2013/2014, the government haul is only estimated at $865 million in 2018/2019. B.C. estimates it will spend $53.6 billion in 2018/2019. So, a 2 per cent spending cut would easily offset government revenues from the carbon tax. Again, a bit of fiscal discipline, and there’s no problem.

Of course, with carbon taxes set to escalate by $10/tonne/year, leading to a $50/tonne level in 2022, the addiction to carbon tax revenues will grow, and therefore become harder to shake, needing somewhat deeper spending cuts by the governments, which might adversely impact social services, leading to public opposition.

Of course, the cynic might observe that from government’s perspective, that’s a feature of the escalating tax, rather than a bug.