Climate Bills and a Green Economy

British Columbia’s Carbon Tax Turns Two

July 5, 2010

Policy Note - With all of the attention focused on the Harmonized Sales Tax (HST) implementation on July 1, most people seemed to miss the next increment of that other much-hated tax, BC’s carbon tax. As of July 1, the carbon tax is now $20 per tonne of CO2, or about 4.6 cents on a litre of gasoline. And like any two-year old, this toddling tax increase is set to wreak some havoc on the household.

What the carbon tax shares with the HST is a bigger hit to the bottom of the income distribution. When it was introduced back in 2008, the carbon tax dedicated about one-third of revenues to a low-income credit (the remainder going to personal and corporate income tax cuts). This was a big positive with households in the bottom 40% of the distribution slightly better off on average, with credits exceeding taxes paid.

Alas, last year’s increase to $15 a tonne wiped out that gain because the low income credit barely increase in value (from $100 per adult to $105), while the carbon tax grew by 50%.

The new 2010 increment to the carbon tax will make the whole regime regressive – meaning a bigger hit to low-income families relative to their income; they will be absolutely worse off even after considering the credits. For the bottom 40%, the numbers are not huge – about a $30 per year loss, but pile that on top of the HST and you get the picture. That said, it could have been worse: the 2010 budget increased the credit another ten bucks to $115.50 per adult.

One might argue that the whole point is to get all households to change their behaviour in response to the carbon tax. But it is the lowest income families that have the hardest time making the capital investments needed to get ahead of the curve, and who are most locked into carbon necessities (like heat) that are difficult to reduce easily. High income families have a much easier time reducing their consumption and upgrading their homes for energy efficiency.

Like the HST, the carbon tax brings a windfall to business, with a large chunk of this year’s revenue going to corporate income tax cuts. Back in 2008, the projected recycling to business tax cuts in 2010/11 was estimated at $333 million. In the 2010/11 budget that amount has been souped up to $412 million – more than half of the anticipated $796 million in carbon tax revenues – to add onto savings coming from the HST.

Since all taxes are ultimately attributable to households, corporate tax cuts are essentially upper income tax cuts. On this basis, the top 20% of households (who own the vast majority of shares in businesses) are actually huge beneficiaries of the carbon tax regime. Not counting the corporate tax cuts, the top 20% of households would pay about $536 more on average in carbon taxes than they receive in personal income tax cuts, but if we include the corporate tax cuts they receive a net benefit (tax cuts less carbon taxes) of $291.

The remaining carbon tax revenues are recycled into personal income tax cuts. In 2008, this was supposed to be $410 million in personal income tax cuts. By the 2010/11 budget that number had been almost halved to $211 million (there is also $20 million in benefits to northern and rural households in addition to this).

Don’t get me wrong: carbon taxes are still an important policy tool in battle against global warming. In fact, at $20 per tonne we are only now just getting into the range of carbon prices that will start to change behaviour. Currently scheduled increases go to $30 per tonne in July 2012, but after that we do not know where the BC government will go with the tax. A study for the David Suzuki Foundation and Pembina Institute by Mark Jaccard and Associates concluded that carbon taxes needed to hit $200 per tonne by 2020 if we are going to achieve our GHG emission reduction targets.

That’s a steep price increase, and that is why we need to get the details right around how the proceeds of the tax are redistributed. Given the need of lower-income households to adapt, there is a compelling case to be made to significantly increase the share of revenues going to a refundable credit — like half of the carbon tax revenues, with more households in the middle-income range benefitting as well. (In fact, pooling the carbon tax credit with the HST/GST credits into a consolidated credit and greatly increasing their values would be a nice step towards a guaranteed income, but I digress.)

The other half of carbon tax revenues should not go into further personal and corporate income tax cuts, and instead should be used for major improvements in public transit, energy efficiency retrofits, and green jobs training programs. In 2010/11, the carbon tax is estimated to bring in almost $800 million in revenue, rising to $1 billion next year. That is some serious cash that would greatly accelerate climate action in BC.

*Note: Figures cited are based on my 2008 report with Toby Sanger, Is BC’s Carbon Tax Fair? Numbers have been updated based on information in Budget 2010.

Canada Debuts the Harmonized Sales Tax

August 30, 2010

Global Trade News - At the beginning of July 2010, Canada’s Goods and Services Tax (GST) and Provincial Sales Tax (PST) were combined into a single sales tax – the Harmonized Sales Tax (HST). The creation of the HST is an attempt by the Canadian Government to build a more efficient tax system while not increasing sales tax revenues. Some of the Canadian territories have already complied with the new ruling – Ontario implemented the HST at the rate of 13%, British Columbia at 12%, and Nova Scotia increased their HST from 13% to 15%.

Almost everyone has to pay the GST/HST on purchase of taxable supplies of property and services and only a limited number of sales are exempt. Although the consumer pays the tax, businesses are generally responsible for collecting and sending it to the government. In general, businesses collect GST/HST on most sales and pad the GST/HST on most purchases around business operations.

How will this change affect imports and exports? Goods imported into Canada are subject to the GST or the federal part of the HST, exempt for items specified as non-taxable importations. Goods that are ordinarily GST/HST taxable may be zero-rated if they are exported from Canada. This means that you do not charge GST/HST on taxable sales if you deliver the goods or make them available to a purchaser outside of Canada.

An HST Carbon Credit?

August 31, 2001

Vanderhoof Omineca Express - ... BC Stats says the cost of living in British Columbia increased by two per cent in July, largely due to the harmonized sales tax. Oh, there were other factors too, such as the increased cost of fuel due to the carbon tax increase.

And speaking of carbon, here’s an interesting thought (at least to me).

The province has committed itself to being carbon neutral. Government employees -– everyone from the premier on down -– track their carbon footprint. The province has created the Pacific Carbon Trust, which is tasked with ensuring the province is carbon neutral. So, every time Shirley Bond or Pat Bell fly to Victoria, the Pacific Carbon Trust buys the commensurate number of new trees to offset their carbon footprint. Okay, it’s a little more complicated that that, but you get the idea.

The forest fires ravaging the land are spewing tonnes of carbon dioxide into the atmosphere. Is anyone trying to figure out how much carbon dioxide the fires are emitting?

Now for the big question. Given that most of the trees burning are on Crown land, is the Pacific Carbon Trust going to buy enough carbon credits to compensate for all the smoke?

B.C. Carbon Tax Jumps More Than 1 Cent

July 1, 2010

CBC News - The HST is not the only new levy that B.C. residents start paying Thursday.

The province's carbon tax on gasoline and other fuels also goes up more than one cent per litre, meaning higher prices at the pump, at home and elsewhere, according to the Canadian Taxpayers Federation.

"Keep in mind that almost everything that we purchase, from food to clothing, is transported by trucks," said federation spokeswoman Maureen Bader. "And businesses will also be passing that cost increase down."

The carbon tax on gasoline goes up 1.12 cents, to 4.45 cents per litre. The carbon tax on diesel fuel increases 1.27 cents, to 5.11 cents a litre.

There is no harmonized sales tax on fuel in B.C.

Natural gas and other fuels like propane, kerosene and home heating oil are also subject to carbon tax increases Thursday.

The B.C. government says putting a price on emissions will encourage people to reduce their use of fossil fuels. But there's little evidence that's happening, said Bader.