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Carbon Tax Budget Surprise

Author: Maureen Bader 2008/03/23

Tax increases are never popular. To get taxpayers to grumble as little as possible, the Campbell government has committed to make its new carbon tax "revenue neutral". That means higher taxes for home heating and at the gas pump will be matched by lower income taxes. The goal is to have overall government revenues remain the same. But what hasn't been asked is what happens if carbon tax revenues aren't as high as the government expects What if government revenues actually go down After all, isn't that the goal of the carbon tax to reduce fuel consumption Or is it

It's counter-intuitive, but the government's recent budget forecasts gasoline and diesel consumption to increase by 2% per year between 2008 and 2010. Far be it for this writer to question official wisdom in Victoria, but that kind of nonstop increase is higher than it has been in the past. Between 2002 and 2005 (the last year for which data is available), fuel consumption went up by 1.6% per year. And this was during a period of strong economic growth.

When you add the carbon tax to the already highest fuel taxes - not to mention skyrocketing oil prices - and a slowing B.C. economy, it's not a big stretch to suggest the government may not get the revenue it expects.

So what happens if revenues don't meet projections The government cuts spending - right Well, don't count on it. The government has been blowing cash out the door. Since the Liberals came to office in 2001 spending has gone up a whopping $7.3 billion. Add to that the more than $1 billion for "climate action" costs and the Liberals will have increased the size of government by more than 35% this decade. And, who knows, with an election in 2009, that figure could be even higher.

So if the carbon tax take isn't as high as expected, how will the government fund the spending party Well, the government plans to squeeze more out of Crown corporations like BC Hydro. By 2010 it expects to extract 20% more revenue. Hydro rate increases are already scheduled to add $100 - $300 to family budgets within two years. If gasoline consumption doesn't grow as fast as expected - and there's a good chance it won't - hydro rates could go even higher.

Of course, the irony here is why is the government bothering to impose a carbon tax in the first place if it doesn't expect energy consumption to go down. The premier's chief policy advisor Mark Jaccard suggests behaviour won't change until carbon is taxed at a rate of $180 per tonne. This summer, the government will impose a $10 per tonne carbon tax, which will go up to $30 per tonne in 2010. At the gas pumps it translates to 2.4 cents and 7.5 cents per litre respectively. But if the ideologues advising the premier these days have their way, the additional tax at the pumps would be 43.2 cents per litre.

In fact, Jaccard is on record suggesting carbon emissions should be taxed at a rate of $240 per tonne. That's - wait for it - a tax at the pumps of 57.6 per litre. Gasoline would go over $2 a litre.
It is true that carbon consumption will likely continue upward. What's less certain is whether it will go up as dramatically as the government forecasts and whether the government will cut its spending if necessary to keep its budget balanced (or at least how it defines a balanced budget) should revenues decline.

The whole policy borders on a Monty Python skit. The government imposes a tax to supposedly reduce carbon emissions at the same time it budgets an increase in fuel consumption. Uncertainty will be a hallmark of budgeting in B.C. for years to come as central planners work to modify our behaviour. Meanwhile, NASA data shows ocean temperatures have been cooling over the past five years. As climate models claim that between 80-90 per cent of global warming is due to warming ocean temperatures, perhaps like knights, we should be appalled at ruffians who say 'ni' at will to old ladies. Yes, there is a pestilence upon this land.


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