Manufacturers, small businesses slam Liberals’ carbon tax rebate system

‘Deeply worrisome’ changes add costs, could spark another fight, group says

OTTAWA Small businesses are warning that the carbon tax rebate system outlined by the federal government on Tuesday could force the private sector to shoulder an unfair portion of the costs, piling on new tax burdens just as expanded Canada Pension Plan requirements come into force next year.

The “deeply worrisome” tax changes will affect everyone from small textile manufacturers to pizza restaurants that use natural gas-fired ovens, said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). He said the rebate system introduced Tuesday could reignite anger within the small business community that came as a result of Finance Minister Bill Morneau’s small business tax changes last year, which effectively raised taxes on high-wealth individuals and kicked off a political uproar.

“They already picked a fight with business owners with the small business tax changes in 2017, and now it looks like there will be another big one in 2018 over carbon taxation,” Kelly said.

“It may have completely wiped out whatever reconciliation was happening between them.”

He said the carbon tax rebate system, which will be enforced in four provinces, comes just as the federal government prepares to roll out expanded CPP contributions, which will eventually raise the individual benefit rate by 33 per cent. The expanded contributions begin next year. Employers pay half of CPP benefits, which in turn raises payroll costs.

Kelly also warned the government against introducing an overly complicated application process to apply for rebates, saying that a series of tax changes over the Liberals’ time in power has increased the administrative burden for business owners.

Dennis Darby, CEO of the Canadian Manufacturers & Exporters, said the group had “concerns” with the rebate system announced Tuesday as it only redistributes a small portion of tax revenues toward investment in clean technology, reducing the competitive edge of manufacturers.

“Canada already has a significant problem attracting investment from both foreign and domestic sources,” Darby said. “The federal carbon pricing system as it is structured further weakens our investment position.”

The federal carbon tax, which will begin at $20 per tonne in January 2019 and rise by $10 per year, will only be enforced in the four provinces that have not agreed to their own carbon pricing system: Ontario, New Brunswick, Manitoba and Saskatchewan.

On Tuesday, the federal government detailed how it would enforce its carbon tax rebate system in those four provinces, which effectively involves paying out reimbursements to voters. For most families, the rebate will be higher than their annual carbon tax payments, according to the government — suggesting that at least some of the remaining costs will be shouldered by businesses.

The government said in a statement Tuesday it “recognizes that SMEs can expect to incur additional costs as a result of carbon pollution pricing.” It said it would provide reimbursements for small -and medium-sized companies, but did not specify what mechanism would be used, promising instead to release details in early 2019.

It did, however, provide estimates of the overall value of reimbursements for SMEs, which will total $105 million in Ontario in 2019-20, as well as $30 million in Saskatchewan, $15 million in Manitoba and $5 million in New Brunswick.

Those reimbursements to businesses are expected to rise by 2023-24, up to $255 million in Ontario, $80 million in Saskatchewan, $35 million in Manitoba and $15 million in New Brunswick.

Kelly said he still believes small businesses are likely to pay an outsized portion of the total cost.

Meanwhile, representatives for Canada’s large businesses remained neutral on the rebate system.

Large scale emitters like cement makers, oil and gas companies and mining firms have been largely supportive of carbon taxes, arguing it is the most efficient mechanism to drive down emissions.

Revenues from the carbon tax on industrial-sized emitters are separate from the revenues outlined in the federal plan on Tuesday, which instead applies to consumers.