It is becoming clearer by the day that B.C.’s carbon tax is not working as originally promised.
When then-premier Gordon Campbell introduced the levy in 2008, his government assured us it would be “revenue neutral.” That is, all of the money raised would be given back in the form of income tax cuts.
This promise was made, in part, for political reasons. The NDP at that time campaigned against the levy, with the slogan “Axe the tax.”
Campbell evidently felt this resistance could be muted by assuring the public this wasn’t a scheme to fatten the treasury.
Yet to a considerable degree, that is what’s happened.
There are two aspects to this. First, successive B.C. governments have withdrawn in stages from the initial promise.
When Christy Clark took over from Campbell, she began the retreat, then, after the NDP were elected in 2017, revenue neutrality was formally abandoned.
Currently, the tax raises in the neighbourhood of $2 billion a year. Of that, only $235 million was returned in income tax cuts during 2018, and $252 million in 2019.
This amount was increased by a one-time payout of $500 million in 2020, to bolster COVID-19 relief.
Nevertheless, on an ongoing basis, a fair assessment is that only around one eighth of the money raised by the levy is being returned directly to taxpayers.
Premier John Horgan’s government argues that some additional funds raised by the levy go to help businesses reduce their carbon emissions. That may well be beneficial, but it is not what was promised.
Basically, his government has scooped the cash and added it to general revenue.
Second, the picture is further complicated by the federal government introducing a carbon tax of its own. In 2017 the new levy was set at $20 per tonne in 2019, rising to $50 next year, and $170 by 2030.
But two difficulties arise, one political, the other practical.
Like Campbell, Prime Minister Justin Trudeau dealt with the anticipated political blowback by promising that most of the funds will be rebated to consumers.
But will future governments abide by this commitment? If B.C. is the model, the answer may well be no.
As well, Trudeau had to deal with the reality that some provinces already had carbon taxes, while others either had none, or had lower rates than the federal scheme.
He dealt with this by trying to level the playing field. Provinces with taxes at the $50 federal rate would be exempt from his levy.
In those with partial rates, the federal tax would be added incrementally to bring the combined rate up to the $50 level.
But that has uneven consequences for taxpayers.
If a province has no carbon tax, like Alberta, the $50 federal levy will apply, and local residents will get Ottawa’s full rebate.
If the province has a tax, but at a rate lower than $50, local taxpayers will get only a partial rebate.
And in provinces such as B.C., where our tax rate is already $50, we will get no federal rebate at all.
In short, although the end result is a $50 levy, it makes a big difference who is doing the taxing.
There are several lessons to be learned here. First, while governments often introduce taxes to meet laudable objectives, the lure of additional revenues eventually proves hard to ignore.
Second, if reducing CO2 emissions were indeed the intent, there would be no need for B.C. to persist in its carbon tax scheme.
Both the provincial and federal tax reach the same result — imposing identical price increases on carbon fuels. Environmentally, it makes no difference which tax is applied, since one cancels the other out.
However, from the taxpayer’s point of view, the federal scheme is temporarily more attractive, since Ottawa is offering a substantial rebate, while the B.C. government has reneged on that promise.
In the long run, though, neither government can be counted on to remain true to its word.
The carbon tax, while admirable in principle, will go down in history as just another cleverly disguised cash grab.
