Fraser Forum

Carbon tax will make Canadians worse off

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Carbon tax will make Canadians worse off

Last week, after the Parliamentary Budget Officer (Yves Giroux) confirmed the existence of internal government estimates, the Trudeau government finally revealed its internal analysis of the economic impacts of the federal carbon tax, confirming what other studies have shown—the carbon tax will hurt Canadians.

The Trudeau government introduced the carbon tax, which imposes a cost on anyone using fossil fuels based on the quantity of greenhouse gas emissions, in 2019 at $20 per tonne of emissions. The tax increased from $65 to $80 per tonne on April 1, 2024 and is set to reach $170 per tonne by 2030.

Four years ago, the government claimed the carbon tax’s impact on the Canadian economy would be “almost zero.” But now the government's own data confirms the cost to the economy will soar into the billions.

But this should come as no surprise. According to work published by the Fraser Institute, which was the first publicly available analysis of the federal government’s $170 per-tonne carbon tax, contrary to government claims, the higher carbon tax will impose significant costs on Canadians and the economy.

Specifically, using a large empirical model of the Canadian economy, the study found that a $170 per-tonne carbon tax will cause the economy (i.e. GDP) to shrink by about 1.8 per cent, cause a permanent loss of nearly 185,000 jobs, and reduce real incomes in every province. Even with the carbon tax rebates to households, the overall income loss was calculated to average about $1,540 per employed Canadian annually.

Additionally, the study found that the federal and provincial governments would collect less tax revenues because of the lower rates of economic growth caused by the carbon tax. The contractionary effects from the carbon tax were estimated to be large enough to cause the combined federal and provincial budgets to deteriorate by roughly $22 billion annually by 2030.

Overall, the federal carbon tax will make Canadian households financially worse off, adversely affect government finances, and have significant negative effects on the economy and Canadian workers. It’s time for the Trudeau government to acknowledge the implications of its own data findings and reassess its carbon tax plan.

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