“Pretty amazing.”“Flabbergasting.”“This is quite jaw-dropping for us.”
Those were some of the offhand reactions from Oregon state legislators on Wednesday after Environment Minister Terry Lake briefed them on B.C.’s carbon tax.
The subtitle of his address could have been: “How to hike taxes on gas, win an election by suckering the Opposition, secure the green vote and not crater the economy.”
Lake addressed legislators in Salem, Oregon, about B.C.’s five-year experience with the carbon tax.
It was imposed incrementally starting in 2008 and just reached its final level last summer, which is seven cents a litre on gas and corresponding amounts on all other fossil fuels.
State politicians appeared fascinated that someone could hike gas taxes by about 26 cents a U.S. gallon and live to tell the tale.
“It sounds like a lot,” said Lake. “But gas prices change in a week by that amount. People still like to blame us for increases, but there are other factors.”
The simple secret to getting it done is the revenue neutrality. That’s the legislated requirement that all revenue from the carbon tax be offset by corresponding reductions in personal and corporate taxes.
“We’re taxing things we don’t want — carbon pollution — and reducing tax on the things we do want — jobs and success,” said Lake.
The government reviewed the tax over the past year and came out with some startling findings.
It claims a 64 per cent approval rating for the tax, based on one poll.
More importantly, the study found that fuel use in B.C. has declined, with no appreciable impact on the economy. Everywhere else in Canada, fuel use dropped after the 2008 economic meltdown, then bumped up again over the past few years. In B.C., it continued to drop even with moderate growth and increasing population.
“There is something going on in B.C. that isn’t going on in the rest of Canada,” said Lake.
Apart from the neutrality, the other trick to getting it done was distributing the offsetting tax breaks properly, between business and individuals, and protecting low-income earners.
In the first year, two-thirds of the value of the tax cuts went to individuals. It’s swung the other way, and this year businesses will get $829 million in tax cuts to make up for the carbon tax, while families get $546 million.
The total cuts ($1.4 billion) are still more than the carbon-tax revenue ($1.2 billion), so it’s actually revenue-negative for government.
It was introduced with minimal consultation nine months before an election.
The New Democrat Opposition came out against the tax, and Lake said: “In many ways it cost them the election. Environmental groups stood up and voted for us. It stood the test of the electorate.”
B.C. Liberals are committed to standing pat with the carbon tax. But NDP leader Adrian Dix has some changes in mind.
He’s committed to dedicating carbon tax revenue to public transit in B.C. Cities have an insatiable appetite for transit funds, particularly Metro Vancouver. So the idea is appealing.
But if that leaves the impression that $1.2 billion in new carbon-tax revenue will flow to transit and green initiatives under an NDP government, it’s a mistaken one.
Because there are no carbon-tax revenues. The carbon tax system brings zero dollars to the treasury, because of the revenue neutrality.
Dix always delinks his other public tax idea — raising corporate taxes back up to 2008 levels.
But it’s directly related to his carbon tax-for-transit idea. Because that’s the only place from which the money could flow. The corporate tax hike would wipe out carbon-tax neutrality as far as business is concerned.
But that doesn’t mean the $829 million in business offsets would go to transit and green initiatives.
The corporate tax change is just over half that: $450 million this year.
There are a handful of other business tax breaks lumped together as offsets that add up to the remainder. Those aren’t on the table.
The NDP now supports the carbon tax. But the question is whether it can survive, if revenue neutrality is abandoned.
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