Ottawa must be transparent about real cost of carbon tax
In yet another troubling move, the Trudeau government is proceeding with its planned 25 per cent carbon tax increase despite record-high gas prices and the highest inflation rate in 30 years. The 25 per cent increase will raise the cost of greenhouse gas emissions from $40 per tonne to $50 per tonne, exacerbating increases in the cost of living for Canadians. And this is just the beginning as Ottawa plans to increase the federal carbon tax to $170 per tonne over the next eight years.
The government has promised that the carbon tax will have “almost zero” economic impact, in fact claiming that most families will be better off because much of the proceeds of the carbon tax are refunded to eligible households. However, a new report by the Parliamentary Budget Officer (PBO) provides further evidence that these claims are untrue. The report concludes that most households will experience a net loss of income from the federal carbon tax, when accounting for both direct and indirect costs.
Specifically, the report finds that this year, 60 per cent of households in Alberta, Ontario, Saskatchewan and Manitoba—the four provinces where the federal carbon tax applies—will pay more in carbon taxes (accounting for both direct and indirect costs) than what they get in rebates. By 2030, 80 per cent of households in Ontario and Alberta will be worse off and 60 per cent will be worse off in Manitoba and Saskatchewan.
Overall this year, on average, Ontarians will pay $276 per household because of the federal carbon tax. In 2030, the average loss for Ontarians will be $1,416 per household.
In addition, federal finances will be negatively impacted by the federal carbon tax. The PBO report finds that the federal deficit will increase by $0.9 billion in 2021-22 and by $5.2 billion in 2030-31, when the current carbon tax increases are fully implemented.
The findings of the PBO report mirror previous work by the Fraser Institute, which last year published the first publicly available analysis of the federal government’s $170 per tonne carbon tax and found that, unlike government claims, the higher carbon tax will have significant negative impacts on Canadians and the economy. Specifically, using a large empirical model of the Canadian economy, the study found that a $170 per tonne carbon tax will cause the economy (i.e. GDP) to shrink by about 1.8 per cent, cause a permanent loss of nearly 185,000 jobs, and reduce real income in every province.
Similar to the PBO study, our study also found that the federal and provincial governments would collect less tax revenues overall because of the carbon tax and the lower rates of economic growth it imposes. The contractionary effects from the carbon tax were estimated to be large enough to cause the combined federal and provincial budgets to deteriorate by roughly $22 billion.
Overall, the federal carbon tax will make most Canadian households financially worse off, will adversely affect government finances and have significant negative effects on the economy and on Canadian workers across the country. It’s time for the Trudeau government to acknowledge this reality and be transparent with Canadians about the real impacts of its carbon tax.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.