Carbon Tax – Revenue Neutral or Fiscally Neutral?

On December 13th, Wade MacLauchlan (interestingly not the Minister of Communities, Land and Environment – Robert Mitchell) made a ministerial statement regarding PEI’s role in the recently negotiated “Pan-Canadian Framework on Clean Growth and Climate Change”.  It answered a lot of the questions I’d just asked, ironically, in question period that same day – just several minutes earlier – he had refused to provide the answers!

My questions from Question Period that day.

The details of the statement about PEI’s clean growth and climate change strategy from the video statement include:

• being a “made in PEI” solution (of course – what else would it be?),
• being collaborative with other provinces (which is important since New Brunswick is going to get credit for carbon emission reductions if PEI buys less of their fossil-fuel generated electricity),
• moving from fossil fuels to using electricity for home heating and transportation – i.e. electric cars
• increasing capacity to generate electricity from wind by 35% by 2025
• creating programs to support Islanders in making their homes energy efficient (why aren’t we offering more programs today?)
• no change to HST policy on home heating oil (this is a big one because it doesn’t actually help with reducing carbon emissions, but it is good for low income Islanders – they also need to remove HST on the other sources of home heating – like electricity)
• adopt the national building code (about time!!)
• partner for “transportation innovation” with other provinces and Federal government (not sure what this means – only time will tell)
• implement a carbon tax on PEI that is “fiscally neutral” – with additional tax dollars spent on clean energy incentive programs to help low-income Islanders
• the carbon tax will NOT extend to agriculture and fisheries (this is a big one – does this mean the carbon tax on the rest of PEI will have to be higher to compensate?)

“Fiscally neutral” versus “Revenue neutral”

When it comes to a carbon tax, the worst thing that could happen is that people will not only be paying more, but the money will be gobbled up by government and never actually used to help lower carbon emissions.  In this context, one thing that stuck out is his use of “fiscally neutral” instead “revenue neutral”.

Here some definitions:

Revenue Neutral: Taxing procedure that allows the government to still receive the same amount of money despite changes in tax laws. The government may lower taxes for one particular group of people, but raise taxes for another group. This allows the revenue that they receive to remain unchanged (neutral).

Fiscally Neutral: Fiscal neutrality occurs when taxes and government spending are neutral, with neither having an effect on demand. Fiscal neutrality creates a condition where demand is neither stimulated nor diminished by taxation and government spending.  A balanced budget is an example of fiscal neutrality, where government spending is covered almost exactly by tax revenue – in other words, where tax revenue is equal to government spending.  A situation where spending exceeds the revenue generated from taxes is called a fiscal deficit and requires the government to borrow money to cover the shortfall. When tax revenues exceed spending, a fiscal surplus results, and the excess money can be invested for future use.

The two are quite different.

Revenue neutral means that government will give money back to Islanders directly – so that the amount of money government takes in is the same after the carbon tax is in place (for example give tax credits/rebates to Islanders).  This is what British Columbia did with their carbon tax: “B.C.’s tax, implemented in 2008, covers most types of fuel use and carbon emissions. It started out low ($10 per tonne of carbon dioxide), then rose gradually to the current $30 per tonne, which works out to about 7 cents per litre of gas. “Revenue-neutral” by law, the policy requires equivalent cuts to other taxes.”

Fiscally neutral means government gets to take in additional tax revenue and they are just saying they will spend all of the additional tax they take in – no more – no less.

The Premier is an academic, and very careful with his words, so I think this is a deliberate attempt to make Islanders think we are getting something like BC has, but instead it is a thinly disguised tax grab.  Make no mistake about it – this government plans to put a new carbon tax in place that will take additional money out of Islander’s pockets – and they have no intention of making sure that this is offset by other tax breaks.

Now, the MacLauchlan government does claim that they will spend all of this additional carbon tax revenue on projects and incentives that will encourage Islanders to use less fossil fuels, generate less greenhouse gases, and lower carbon emissions.  However, I have grave concerns that, just like so many other government programs, much of this carbon tax money will end up being spent on government administration, and/or will be hard to qualify for, will end up being funneled as pork barreling into the FOG (Friends Of Government), or will simply end up in general revenues.

I just can’t help but think that the implementation of a carbon tax that is “fiscally neutral” is just another way to squeeze more tax from Islanders to be used for political gain, instead of helping stop global warming for the good of all Islanders – and the world.