CARBON DIVIDEND RILES TORIES
But looks like a political winner
It’s a healthy strategy to be skeptical of anyone who says “the cheque is in the mail” or “I’m from the government and I’m here to help” — the more so if it’s someone from the government who tells you the cheque is in the mail.
But distrust of the Trudeau Liberals doesn’t come close to explaining the fury that greeted the news in this space earlier this week that, if the federal government provides a “carbon dividend” rebate to households in provinces where it has imposed a carbon tax, most people would emerge better off.
The study by Canadians for Clean Prosperity, which hasn’t even been released yet, was dismissed as Liberal propaganda and worse. Conservatives who saw the Liberal carbon tax as their path back to power exploded on social media. “If this happens, I will start to believe in two of the Bible miracles of Cana (water into wine and the feeding of the 5,000 with five fish and two loaves of bread),” wrote one of the few responses that could be reproduced here without offending readers’ sensibilities.
It is an article of faith that the carbon tax is an evil beyond redemption. Yet the Clean Prosperity study concluded that its malign effects can be mitigated, if typical families receive more money back in dividend cheques than they face in additional carbon costs. By its calculations, that would be the case in Ontario, Alberta and Saskatchewan because carbon taxes are likely to be collected not only from households, but also from businesses — yet most of that revenue would be returned to voters.
Given the prospect that the findings could change the nature of the debate on the carbon tax, it was not surprising to see Conservative leader Andrew Scheer’s office issue a fulsome rebuttal. Some of it even made sense.
“Game-changing? Hardly. Only the Liberals could argue that a new tax will leave you with more money in your pockets,” the Opposition Leaders’ Office Twitter account proclaimed.
The OLO pointed out the Parliamentary Budget Officer said a carbon tax would create headwinds that would reduce GDP by $10 billion in 2022; that previous claims about “revenue-neutral” carbon taxes in B.C. have proven false, as thirsty governments have diverted funds into general revenues; that a tax would hurt competitiveness for many businesses; and that creating a new arm of government to collect and then redistribute tax revenues would prove expensive. All fair points.
To that, I would add the fundamental unfairness of rebates being issued to taxpayers in recalcitrant provinces where the federal government imposes its tax as a “backstop,” but not in jurisdictions like Quebec that have moved ahead with plans of their own on carbon pricing.
It is, in short, a deeply flawed policy — except in the two areas that matter to the Liberals in the run-up to a federal election: it would make a meaningful contribution to reducing the greenhouse gas targets for which all parties have signed up; and, crucially, it is a highly progressive means of putting money in the pockets of the people they want to vote for them.
Calls to the Department of Finance to find out exactly how this is all going to work yielded no new details Thursday. One suspects they don’t know precisely who will pay what yet, even though the carbon tax backstop kicks in on January 1, 2019.
As recently as late July, Ottawa reduced the scope of the carbon tax on energy intensive industries, over competitiveness concerns. Draft regulations issued in January indicated high-emitting companies would have to pay a carbon tax on around 30 per cent of their emissions. The new rules lowered that to 20 per cent, while some vulnerable industries like cement and steelmaking will pay just 10 per cent.
In the Clean Prosperity study, those payments were part of the rebate to households, which explains why voters may see dividends that are higher than their outlays in the form of higher gas and heating prices.
Despite the lack of detail, government officials concede the final design will look similar to the model proposed by Canadians for Clean Prosperity.
Kevin Milligan, a professor of economics at the University of British Columbia, said he wouldn’t be surprised if the federal government is planning to send out quarterly cheques that will start landing in mailboxes early in the new year.
If those cheques are generous enough, it would force the Conservatives to commit to cancelling what is in effect a tax cut.
A similar scheme is already in operation in Alberta, where individuals earning less that $47,500, or families with income less than $95,000 a year, receive a full rebate to offset costs associated with that province’s carbon levy. But a portion of the revenues from Alberta’s tax go into general revenues. In the federal case, all proceeds from individuals and businesses will be rebated.
Manitoba Premier Brian Pallister saw where this was all heading, and, despite his aversion to a carbon tax, decided he’d rather have the revenues going to, and the cheques to voters coming from, his government.
Ontario’s Doug Ford called the carbon tax the “biggest rip-off I’ve ever seen,” cancelled his province’s cap-and-trade system, and now will get no political upside if rebate cheques come stamped with a red Government of Canada maple leaf.
There are plenty of things not to like about the Liberal government’s plan. The PBO did state that a carbon tax would hit GDP, but also said the impact could be mitigated by using the proceeds to reduce corporate and income taxes. Unfortunately, neither course has the same bang for the buck as a consumer rebate.
Any cost increase for businesses at a time when they are facing competitiveness pressures because of NAFTA uncertainty and Donald Trump’s corporate tax cuts is also a problem, even after the reductions in rates for high emitters in vulnerable industries.
But politically it seems destined to work. As one Liberal put it, the Conservatives appear to be happy to wander deeper and deeper into the jungle in bold fashion, because they haven’t yet encountered the enemy.
The anti-carbon tax mob are in similarly intrepid mood, dubbing the report “fake news.” Such bombast may be short-lived.
“I suspect things will look very different when the cheques are in the mailbox,” said UBC’s Milligan.