The "Revenue Neutral" Lie

The "Revenue Neutral" Lie

"The BC government has effectively raised taxes by hundreds of millions of dollars without British Columbians even knowing about it." - Charles Lammam, Director of Fiscal Studies, Fraser Institute, February 2017

British Columbia’s Liberal government introduced a "classic" carbon tax in 2008 and has been touting it as “revenue neutral” ever since.  Their definition of "revenue neutral" appears to hinge on the fact that the BC government was falsely alleging that it was providing corresponding reductions in personal and corporate tax rates every year that were equal to or greater than the revenue generated by the BC carbon tax. In reality however, and as the figure below shows, while the burden of the "classic" carbon tax is entirely on the backs of individual working BC taxpayers, the vast majority of the tax rebates are provided to to corporations in carefully selected industries.

Marc Lee, Senior Economist with the Canadian Centre for Policy Alternatives in BC, has observed that most of the reductions in other taxes that the Liberals pledged to offset the carbon tax have favoured businesses and not families. Lee stated "most of the carbon tax revenues (2/3) have been in support of corporate income tax cuts", adding further that "the low-income credit, in particular, offset the carbon tax for the bottom 40 per cent when it was first introduced in 2008," Lee writes, "but as the tax has gone up, the credit has not, making that whole regime regressive -- that is, low-income households pay a greater share of their income to the tax than higher-income households."

When originally introduced in 2008, the BC Liberal government generated $306 million in revenue from their "classic" carbon tax.  By 2015/2016 the BC Liberal government generated $1.2 billion from the carbon tax and provided $1.15 billion in corporate tax reductions, including to the film industry, while individual taxpayers only saw their taxes reduced by $579 million. That's right, a carbon tax paid for by working taxpayers in BC was used to fund tax breaks for movie stars!

So it's clear that - even in BC - for the individual taxpayer, there is nothing “revenue neutral” about a carbon tax.

With regards to the affect of BC's carbon tax on its economy, The CATO Institute, a US based think tank, in its Policy Analysis No. 801 entitled The Case Against a US Carbon Tax reported that BC's economic recovery since the last recession (2008/2009) has been shown to be slower than the rest of the other provinces largely due to the BC carbon tax. From 2010 to 2014, BC's gross domestic product growth lagged by 11 percent as compared to Alberta's gross domestic product, which grew 22 per cent, and Saskatchewan's gross domestic product,which grew 15 per cent, during the same period.  

Furthermore, BC's greenhouse gas emissions dropped during the recession but have increased thereafter, despite the presence of their carbon tax.

The BC carbon tax is often praised as the model to follow because of the BC Liberal government's false claims that the carbon tax is "revenue neutral" with regard to BC government revenues. A Fraser Institute report, however, recently concluded that the BC government’s carbon tax is actually NOT revenue neutral. You can read the report here. 

The province is collecting millions of dollars in additional revenue from taxpayers. Once pre-existing tax reductions are excluded, BC taxpayers paid $226 million in increased taxes in 2013-14 and $151 million in increased taxes in 2014-15.

 BC Government Carbon Tax Revenue vs Personal Tax Reductions