Memo to Elizabeth May—B.C.’s carbon tax was not revenue neutral

Yesterday in the House of Commons, our recent study documenting how B.C.’s carbon tax was and is not actually revenue neutral, received considerable attention.

Unfortunately, some of the statements made by members of parliament—particularly those from Green Party leader Elizabeth May—are simply false.

For starters, May (pictured above) disputes the main finding of our study and instead claims that the B.C. government “is giving more tax cuts than it is getting in [carbon tax] revenue”.

This couldn’t be further from the truth.

For the carbon tax to truly be revenue neutral, the revenue generated from the tax must be completely offset with new reductions in other taxes. May agrees with this definition as she says, “[f]or those listening who do not know the term “revenue neutral,” it means that for every $1 of tax taken in on carbon, $1 of tax is reduced.”

The problem, however, is that there is a serious flaw with how the B.C. government reports and calculates revenue neutrality.

The carbon tax ceased being revenue neutral in 2013/14 because the government stopped relying solely on new tax reductions in its revenue neutral calculations and instead began using pre-existing tax credits to give the appearance of revenue neutrality. In fact, some of these pre-existing tax credits were first introduced back in the 1990s.

Once the pre-existing tax credits were properly removed from the government’s revenue neutral calculation, B.C. taxpayers were on track for a net tax increase of nearly $900 million from 2013/14 to 2018/19. So based on the definition of revenue neutrality that May herself provided to parliament, she should be in agreement with the conclusion of our study.

Another problematic statement made by May is that “the B.C. finance department has completely rebutted” our study.

Again this is simply not true.

While the B.C. Ministry of Finance and Finance Minister de Jong himself did respond to our study, this week’s B.C. budget essentially acknowledged the carbon tax wasn’t in fact revenue neutral and took steps to correct the problem.

Specifically, the budget removed three of the six pre-existing tax measures from the revenue neutral calculation and added two new tax cuts. The addition of the new tax measures are projected to make the carbon tax revenue neutral starting in 2017/18. However, based on our calculations, British Columbians are still on track to experience a $599 million net tax hike from 2013/14 to 2016/17, as the carbon tax does not appear to be revenue neutral in those years.

This is hardly a rebuttal of our study. It’s actually proof that our initial analysis was correct.