B.C. proves to Ontario Conservatives that ‘revenue neutral’ carbon taxes are a myth
There are lessons to learn from British Columbia’s carbon tax, and the biggest one is for the leader of Ontario’s official opposition, Patrick Brown.
The lesson is a simple one. Revenue neutrality doesn’t happen.
Politicians sold a carbon tax to British Columbians on the promise of revenue neutrality – the idea that the overall tax burden on the public remains the same because the carbon tax is offset by tax reductions in other areas.
But a recent study by the Fraser Institute has found that British Columbians are on track to experience a $599 million net tax hike from 2013-14 to 2016-17 as a result of a carbon tax that politicians sold to them as “revenue neutral.”
The biggest problem with revenue neutrality is that politicians get greedy.
When the BC carbon tax was first implemented in 2008-09, the government enacted four offsetting tax measures. These included reductions for income tax for the lowest tax brackets, tax reductions for large and small businesses, and a tax credit for low income households. These were all new tax reductions designed to offset the increases caused by the carbon tax.
But give a politician an inch and they’ll take a mile.
Soon the government of British Columbia began including other pre-existing tax credits into the “revenue neutrality” calculation. In 2014-15, the BC government added tax credits for training, film production and scientific research into the “revenue neutral” calculation.
Even in theory this makes no sense. How do BC families’ higher gasoline and heating bills get offset by subsidies to Hollywood movie studios?
Even if film subsidies could actually offset higher household bills (they can’t), the subsidies weren’t even new. Which is the whole point of so-called “revenue neutrality.” A new tax is supposed to be offset by new tax cuts. Instead, what we saw in BC was a new tax on families being offset by old corporate welfare.
When those tricks are removed from the accounting, the Fraser Institute found that the net tax increase has been $599 million.
The BC government essentially acknowledged that the carbon tax has not been revenue neutral, by taking measures in the recent budget to correct some of these problems. These included removing three of the six pre-existing tax measures from the revenue neutrality calculation.
But the BC experience shines a light on the way revenue neutrality can be used deceptively by politicians. Governments looking to boost their tax revenue can use the veil of revenue neutrality to raise our taxes while telling us they aren’t. Cap-and-trade isn’t the only way of obfuscating carbon tax hikes, BC shows us that “revenue neutrality” can serve that purpose as well.
And BC’s finances are objectively better than Ontario’s. Ontario’s government has more than doubled the debt since 2002-03, making us the largest sub-national borrower in the world. The province is also gripped in an electricity crisis, and whoever wins government in 2018 will be tempted to use tax dollars to solve it. Making a carbon tax hike all the more tempting to politicians who told us we wouldn’t pay more.
Perhaps this explains why Brown is plowing ahead with his plan to campaign on a “revenue neutral” carbon tax for Ontario.
He claims that his tax will be a “revenue neutral plan that will reduce emissions and put money back in the pockets of Ontarians.” But so far, voters aren’t buying it. A poll commissioned by the Canadian Taxpayers Federation found that 58 per cent of Ontarians are less likely to vote for a politician that proposing Brown’s model – a straight carbon tax on fuels.
It’s an unpopular idea that the evidence shows us doesn’t work, which means it’s time for Brown to do the right thing and reverse his carbon tax course. Unless, as BC shows us, his carbon tax really is just about the money.