The green tax grab
Almost all the government leaders in Canada’s campaign to reduce carbon emissions argue that effective taxes are essential to prevent environmental catastrophe. Yet they cannot agree on their design or operation, how to use the money or even explain what they are doing in ways that do not invite ridicule.
Fundamental to t hi s problem is the debate over the billions of dollars carbon taxes will generate. It is a big pot that government leaders find hard to resist. Concerned about carbon taxes being seen as one more “tax grab,” but unwilling to let all that loot escape their clutches, they are claiming the money will somehow be rebated to citizens so the levies are “revenue neutral.” But these claims are made in ways that stretch language to the breaking point.
In a throne speech last week, Alberta’s NDP government made the soothing but preposterous assertion that its carbon tax, set to take effect on Jan. 1, 2017, would be “revenue neutral” because all the extra money would be returned to the province through government spending. Estimates suggest the tax could generate up to $ 3 billion a year. Rather than reduce other taxes to allow for this, the throne speech pledged “an i nvestment plan that will fully recycle revenues … into renewable energy, innovation, public transit and other measures that will reduce the carbon intensity of our economy.”
In other words, as long as the government spends the money, it figures it’s off the hook. This inverts the normal meaning of “revenue neutral,” where any extra money from one tax change is deliberately returned to the public by a different, offsetting tax change. If a tax is deemed revenue neutral when the government spends the money, then all taxes are revenue neutral and words cease to have any meaning.
This is more than a matter of semantics. Canada’s governments have portrayed their quest to put a price on carbon as a morally essential crusade to defend the environment for future generations. Canadians may find this worthy of support. They may not feel the same if they realize the crusade is simply a means of increasing revenue for governments that can’t control their spending habits.
Ontario’s Liberal government has adopted a simil ar approach to Alberta. Premier Kathleen Wynne has promised to s pend every dime from a planned cap- and- t rade program. This should not come as a surprise, given Ontario’s continuing deficits and $ 300- billion debt. Wynne says the money will be spent “investing in green projects.” This is more bafflegab. All dollars are the same once they reach the treasury. Every carbon tax dollar “invested” in “green projects” frees up a dollar from general revenue for other purposes. Wynne’s pledge may have polled well, but in practice it simply means a carbon levy is producing more money for her government to spend as it sees fit.
The point of carbon taxes is to discourage the use of carbon-based fuels. Changing behaviour on that scale will necessarily require imposing a cost. It thus will generate revenue, at least until behaviour changes. If a carbon tax is desirable on environmental grounds, and brings in significant money, why should that revenue not be taken as an opportunity to reduce other, less desirable taxes or balance the budget?
In using carbon t axes simply to generate extra revenue, governments create a perverse disincentive for themselves. Once they come to rely on the revenue from the tax, it is in their interest to ensure emissions continue. A reduction in emissions would produce a drop in revenue, hurting the government’s bottom line. There is no reason to expect a government would be eager to cut into its carbon income any more than it is willing to reduce the other taxes to which it clings so ardently.
As demonstrated by the practical failure of the recent first ministers’ meeting, the debate on carbon seems to be driven mainly by public relations considerations and concern for what can be sold to the public. Honesty would be a better approach. If man- made climate change is considered a major threat to humanity, and dramatically reducing Canada’s small contribution to the problem a major priority, impose a tax that hits hard enough to change behaviour. As for the money, either return it to taxpayers by reducing other taxes, or make clear it’s just more general revenue to be used for spending. Anything else is simply a shell game to prevent Canadians f rom recognizing that “saving the environment” has been turned into a tax grab.