Federal government should acknowledge impact of carbon tax hike

On April 1, the Trudeau government will raise the federal carbon tax from $65 to $80 per tonne of greenhouse gas emissions. Opposition is widespread. Seven provincial premiers want the government to scrap the hike, and the federal Conservatives tabled a motion (unsuccessfully) in Parliament to topple the government over the hike. In response, Prime Minister Trudeau says the tax hike will put "more money in the pockets of the vast majority of Canadians."

But in reality, it will make life even more expensive in a country already experiencing declining living standards.

For example, the hike will add an additional three cents per litre of gasoline at the pumps. The price of gas will grow, as the federal carbon tax is scheduled to rise incrementally to $170 per tonne in 2030—only six years from now.

Still, according to the Trudeau government, most Canadians will be better off because much of the proceeds of the carbon tax are refunded to eligible households. However, a recent report from the Parliamentary Budget Officer (PBO) found that most households will experience a net loss of income from the federal carbon tax, even after rebates.

Specifically, in fiscal year 2024-25, 60 per cent of households in Alberta, Ontario, Saskatchewan, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Manitoba will pay more in carbon taxes than what they receive in rebates, after accounting for both direct and indirect costs of the carbon tax. By 2030, 80 per cent of households in Alberta, Ontario, Manitoba, Nova Scotia and P.E.I. will be worse off, as will 60 per cent of households in Saskatchewan and Newfoundland and Labrador.

Indeed, according to the PBO estimates, the carbon tax will cost the average Canadian household between $377 and $911 in 2024-25—even after rebates, with Albertans being the most affected. As the carbon tax escalates annually, the financial burden will intensify. By 2030, the carbon tax's average net cost for Canadian households will rise to $1,490 in Manitoba, $1,723 in Saskatchewan, $1,820 in Ontario and $2,773 in Alberta.

More broadly, the carbon tax will negatively impact economic activity, which will also affect federal finances. According to the PBO report, due to the economic impact of the carbon tax, the federal deficit will increase by $2.3 billion in 2024-25 and by $7.1 billion in 2030-31, when the carbon tax reaches $170 per tonne.

The PBO’s findings echo those of a 2021 study published by the Fraser Institute, which 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 Canadian jobs, and reduce real income in every province. And that the contractionary effects from the carbon tax will cause combined federal and provincial government budgets to deteriorate by an estimated $22 billion annually.

Finally, despite claims by federal Environment Minister Steven Guilbeault that the carbon tax rebates will “help Canadians,” according to the Canadian Federation of Independent Businesses, after five years into the rebate program, Ottawa still owes more than $2.5 billion in rebates to small and medium-sized firms. In other words, the government has been unable to fully implement the mechanism that mitigates some of the tax’s harmful economic effects.

Clearly, despite any claims to the contrary, Monday’s federal carbon tax hike will leave Canadian families financially worse off—now and in the future—damage government finances and negatively impact the economy. In light of this reality, many Canadians and elected representatives want the Trudeau government to change course. The government should acknowledge the real impact of the carbon tax on Canadians from coast to coast, and act accordingly.