BC's Carbon Tax Gets Even More Regressive

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When it was implemented the BC government claimed its carbon tax wouldn’t hurt the poor. We disagreed – and we were right.

by Ian Angus

Last December, to their eternal discredit, ten Canadian environmental groups gave an “Acts of Climate Leadership” award to British Columbia premier Gordon Campbell, for his government’s introduction of a carbon tax.

As an article  posted on Climate and Capitalism earlier commented, the BC tax was a regressive hoax, a crude case of greenwashing.

“the B.C. carbon tax is regressive, shifting ever more of the province’s tax burden onto working people, while reducing taxes on corporations. It will do nothing to cut emissions or slow global warming. The liberal environmentalists who have endorsed this scheme should hang their heads in shame.”

Were we right? Here’s what noted economist Marc Lee writes in the Progressive Economics Forum, marking the second anniversary of the implementation of the BC carbon tax:

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: the2010 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.

Lee defends carbon taxes as “an important policy tool in battle against global warming,” but argues that they should be structured to hit the richest, not the poorest, and that half the revenue should be used for “major improvements in public transit, energy efficiency retrofits, and green jobs training programs.”

We don’t disagree in principle. Carbon taxes can be a useful tool, IF they are combined with concrete action to phase out fossil fuels rapidly and provide alternatives. Unfortunately, pro-business governments (ie, all governments in Canada) aren’t going to do that.