The slogan is short and punchy: “Axe the Tax.” The words have an obvious appeal for many Canadians: The carbon tax raises prices, so scrapping it would lower prices – and leave people with more money in their pockets.
Right?
That’s the theory behind Conservative Leader Pierre Poilievre’s plan to “bring home lower prices and powerful paycheques” by taking a hatchet to the carbon levy. The claim that axing the carbon tax will leave Canadians financially better off could be a political winner for Mr. Poilievre.
It has just one small defect. It’s not true.
As strange as it sounds, most Canadians are getting more money rebated back to them from the federal carbon tax than they pay in taxes. That’s not just the government’s claim. It’s also the conclusion of a 2021 study by three economists from the University of Calgary and the University of Regina, and the March, 2022, study from the Parliamentary Budget Officer.
The reason is that the federal carbon tax is an unusual, revenue-neutral device. The money collected is refunded to taxpayers. You pay in based on your carbon use, but you get a rebate – directly deposited into your bank account – largely based on the size of your family.
A lot of Canadians are unaware of this, with a recent Angus Reid Institute poll finding that more than 40 per cent of Ontarians did not know that they’ve been regularly receiving payments. The Trudeau government has done a terrible job of communicating how its carbon tax revenue-recycling system works – and how most Canadians benefit from it.
Every province has the option of running its own carbon pricing system, but if it declines to do so, Ottawa imposes a federal backstop. Two provinces – British Columbia and Quebec – have their own long-standing systems. They have no federal carbon tax to be axed, and no federal carbon tax rebates.
In other provinces, the federal price of $65 a tonne of carbon applies. That translates into a carbon tax of 14.3 cents on a litre of gasoline. Next April, the federal carbon price will rise, and the tax on gas will go up to 17.6 cents a litre. By 2030, the carbon tax is scheduled to hit 37.4 cents a litre.
That means the carbon tax is raising prices at the pump, and the price of goods that use fuels such as gasoline, diesel and natural gas. Put 50 litres in your tank, and you’ll pay more than $7 of carbon tax. By next spring, you’ll be paying nearly $9.
Conservatives say that means the carbon tax is causing inflation. Technically speaking, they’re right. The consumer price index measures changes in prices, and the carbon tax is pushing up the price of some goods. If next year’s scheduled 3.3-cent increase in the carbon tax on gasoline raises the price of a fill-up from, say, $75 to $77, that’s 2.7 per cent inflation in gasoline.
Looked at across the entire economy, the inflation impact of the carbon tax is small. Earlier this year, Tiff Macklem, the Governor of the Bank of Canada, estimated that tax was contributing about 0.15 per cent to inflation. Not large, but not nothing.
However, when most of us think of inflation, we don’t think of something that leaves us with more money in our pocket. For example, if the price of bananas goes up by 10 cents a pound at your local grocery store, 100 per cent of that extra 10 cents goes to some combination of farmers, shippers, workers, wholesalers and the grocer. Zero per cent comes back to you. Your wallet is lighter. That’s inflation.
But when the carbon tax rises by 3.3 cents a litre of gasoline next year, that will be returned to Canadians.
And thanks to that rebate system, most people are getting back more than they’re paying out. That is particularly true for lower- and middle-income Canadians.
The rebate, which the Trudeau government has done such a poor job of selling, is known as the Climate Action Incentive Payment. It’s paid quarterly, by direct deposit. For 2022-23, the annual payment for a family of four ranged from $745 in Ontario to $1,079 in Alberta. (Why do Albertans get more? Because Albertans use more carbon.) Rural residents also get a significant top-up.
For most families – about 80 per cent of households, according to the government – the rebate is bigger than the amount of carbon tax paid. The vast majority of lower- and middle-income families come out ahead.
Which leads to a paradox: The Canadians who would benefit most from killing the carbon tax are the upper-income family with four internal combustion engine vehicles. And the households who would lose the most from the end of the tax – who will suffer a loss of income – are the family living in an apartment and riding public transit.
If a future Conservative government axes the carbon tax, it will at the same time be axing the financing for the carbon tax rebates. Most Canadians will end up with less money in their pockets, not more.