The Conservatives were demanding last week that the Liberals freeze further increases to fuel charges – aka the carbon tax – with Tory Leader Pierre Poilievre saying the levy costs households thousands of dollars a year.
In response, the Liberals said the average household ends up with more money in their pocket because of carbon pricing, once rebates are factored in.
Who’s right? Both the Conservatives and Liberals are citing real numbers, while omitting some crucial details. Each party presents a tailored version of reality that is somewhat misleading. But on balance, the Conservatives are less wrong.
Let’s start with the Liberal assertion: The average household is a net beneficiary from carbon pricing because of the associated quarterly rebates. Federal carbon pricing is directly imposed in Alberta, Saskatchewan, Manitoba and Ontario although all provinces are supposed to meet a benchmark equivalent to the national plan.
Terry Duguid, parliamentary secretary to the Minister of Environment and Climate Change, rose in the Commons to voice that rebuttal to Mr. Poilievre. “Under our federal system, most households come out ahead, and low-income households particularly do much better,” he said.
That statement is correct if the only thing being considered are the carbon charges directly paid by households and carbon costs passed on by businesses. (Mr. Duguid went on to make that point.) Although Mr. Duguid did not cite the figure, the Liberals habitually say that 80 per cent of households end up better off under carbon pricing.
However, carbon pricing is also meant to force larger changes in the economy by discouraging spending and investment in carbon-intensive activities and industries by making them relatively more expensive. Once those changes – lost jobs and forgone investment – are taken into account, the picture of who benefits changes substantially. Mr. Duguid studiously avoided referring to those costs.
Mr. Poilievre, however, focused on that wider picture, citing figures from a spring report by the Parliamentary Budget Officer that calculated the net cost to households that included direct and indirect carbon charges, plus the follow-on economic costs.
On that basis, only the lowest earning 40 per cent of households were net beneficiaries; 60 per cent of households were worse off.
For his part, Mr. Poilievre did not acknowledge that some households – albeit a smaller proportion – are still better off under carbon pricing. And he did not draw the finer distinction that the economic costs would be unevenly distributed: A household that suffered a job loss would bear a much higher burden, while one that did not would move much closer to being a net beneficiary of the carbon-pricing system.
Still, those are much smaller omissions of fact than those made by the Liberals.
Mr. Duguid also said, “Carbon pricing also lets individuals and businesses decide for themselves how best to reduce pollution.” That is only narrowly true under the Liberals’ version of carbon pricing.
The government is also implementing a host of other measures, including a clean fuel standard, that do indeed dictate how businesses and individuals should reduce emissions. And 10 per cent of the revenue from carbon charges is earmarked for use to fund various officially approved initiatives – hardly a laissez-faire approach.
Overall, then, the Conservatives presented a broader, and more accurate, accounting of the financial and economic costs to households of federal carbon pricing.
Taxing questions
Are contributions to the Canada Pension Plan a kind of tax? That’s a question that has been hotly debated lately, including last week by my colleague Rob Carrick, who is among those who contend that CPP payroll deductions are a type of savings. (As distinct from a tax, a compulsory fee paid into general government revenues.)
It might look that way from the perspective of an individual’s personal finances – after all, you pay contributions for years that are directly tied to the level of benefits you eventually receive in retirement. Those benefits can even be passed on, in part, to your spouse after you die.
In fact, however, those payments into CPP are taxes, with minor caveats.
To start with, the federal government unambiguously categorizes CPP contributions as a payroll tax. And that is clearly the case for the contributions that employers make. Businesses match the contributions of their employees; those payments are pure expense.
For employees, though, the matter is a bit more complex, a picture that is made fuzzier by the (fiscally prudent) decision of two decades ago to push contributions higher than absolutely needed at the time, and to set up the Canada Pension Plan Investment Board. The federal government increased contribution rates after 1997 to ensure the fiscal stability of public pensions over coming decades, deliberately overshooting the mark to create a national nest egg that could then be invested.
The $539-billion in assets managed by the CPPIB sure make it look like a savings plan. But even that large a sum is pretty much just a rounding error, points out Alexandre Laurin, director of research at the C.D. Howe Institute. Those billions of dollars are outstripped considerably by the obligations to retirees in coming decades, although the plan will draw down on those savings to ensure that payouts don’t outstrip contributions later this century.
Unlike private-sector pensions, those projected future revenues and costs include people who aren’t yet contributing to the plan – indeed, many aren’t even born yet.
Mr. Laurin says there was a case to be made for looking at the CPP as a kind of savings plan in the years after those landmark changes in 1997.
But we’re now at a point where current contributions equal current expenditures – making CPP a pay-as-you go program in all but name.
The question is, how would that be different than the government rolling all those contributions into general revenue and then sending payments to pensioners? The answer is, it wouldn’t.
There is, however, one exception to that logic: the enhanced benefits that will be paid out under the Quebec Pension Plan. Part of the reason that CPP and QPP contributions have been rising so quickly in recent years is the decision to boost future benefits for current workers through an add-on program, called enhanced benefits.
Contribution rates for QPP enhanced benefits are calculated in a manner similar to private-sector pensions, Mr. Laurin says. (The enhanced benefits under CPP are calculated in the same way as the core plan.)
That means that it’s reasonable to view contributions to QPP enhanced benefits as a kind of group savings plan, rather than as a tax. As for the CPP and the core QPP, if it looks, acts and is structured like a tax ... well, you know the rest.
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Pathfinders: The age of a family’s youngest child is a clear influence on a mother’s return to paid work, but “largely irrelevant” for a father’s return to the labour force, concludes a new study from the C.D. Howe Institute. One major reason is that many mothers aren’t able to access job-search support programs under Employment Insurance since they are returning after prolonged periods of caring for children. The three authors – Wilfrid Laurier University economics professor Tammy Schirle, University of Waterloo economics professor Ana Ferrer and researcher Annie (Yazhuo) Pan – recommend that governments develop policies that support the job searches of all parents and that recognize “... the challenges facing married mothers and fathers are often different.”
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