Lower income households could see some payback from carbon tax

Low income households could see some of the carbon tax revenue back into their coffers.

According to Dale Beugin, executive director at Canada’s Ecofiscal Commission it’s very likely provincial governments will return at least some of the money collected through any carbon pricing scheme back to the lower-income groups.

That’s what British Columbia did, giving back carbon revenue to the poorest 40 per cent of households in that province. Alberta is giving back money to the bottom 60 per cent of households.

“Every province has the choice to use those resources as it wishes,” said Beugin.

Among economists, the consensus is the bulk of carbon tax revenues will be plowed back into personal and corporate tax cuts and new infrastructure spending to meet the Canada's emissions reduction targets.

“In our analysis, we assumed that 50 per cent of emissions revenues will be given back in the form of provincial personal and corporate income tax cuts, 40 per cent will go to additional public investment spending, and 10 per cent will go to lifting public sector spending to cover higher administration costs,” said Alicia Macdonald, a principal economist with the Conference Board of Canada.

With that boost to public spending to cut greenhouse gas emissions, Beugin is confident new technologies will be developed to meet Ottawa’s targets and this will create jobs and generate economic activity to offset any losses in the industries hurt by a price on carbon.

In Clearing the Air: How Carbon Pricing Helps Canada Fight Climate Change, Beugin wrote in early April this year that British Columbia’s experiment with a carbon tax has had little or no impact on the economy and helped cut greenhouse gases.

“Since 2008, British Columbia’s economy has outperformed the rest of Canada,” he wrote. “This difference doesn’t mean that the carbon tax is the reason for British Columbia’s higher growth … but it does reinforce that the tax likely wasn’t a significant barrier.”

The Conference Board's assessment isn't quite as rosy. Its economists are forecasting the residential construction, finance, insurance, and real estate sectors will be hit hard by a carbon tax.

"Eroded purchasing power also results in households and businesses cutting their spending, and it is therefore no surprise that other commercial services .... (including) accommodation and food services, administrative support, and arts, entertainment, and recreation ... also fall significantly," the board noted of its scenario with the lowest level of carbon pricing of the three described in The Cost of a Cleaner Future report.

The utilities and transportation sectors are also expected to see a downturn with carbon pricing and wholesale and retail trade is expected to soften, forecasts the board.

There will, however, also be winners under a carbon price regime. The board sees these as being the construction industry due to higher government spending, public administration, and the professional, scientific and technical services sectors.