ANALYSIS: Getting Poorer or Richer? A Look at the Claims Around the Carbon Tax

Prime Minister Justin Trudeau announces that the government will double the carbon price rebate for rural Canadians beginning in April 2024, at a news conference in Ottawa on Oct. 26, 2023. The Canadian Press/Sean Kilpatrick

The battle over the carbon tax rose to new heights on March 21 when the Conservatives, supported by calls from a majority of provincial premiers, failed to bring down the government with a non-confidence motion to stop the April 1 hike.

But, amid the political wrangling, what’s the bottom line on the carbon tax?

Most Canadians are likely familiar by now with Tory Leader Pierre Poilievre’s call to “axe the tax,” saying the charge is making people poorer. Provincial leaders also cite the affordability crisis when asking Ottawa to reconsider its policy.

But the Liberal government counters that most Canadians are getting more back in rebates and that dropping the tax would mean the end of these much-needed government cheques.

“The price on pollution delivers and our carbon rebates put more money in the pockets of 8 out of 10 Canadians,” Finance Minister Chrystia Freeland said when she appeared before the House of Commons finance committee on March 21.

The rebate is the rebranded Climate Action Incentive payment. The government changed the name in February, citing concerns that the measure was not being communicated well enough.

Residents of most provinces receive quarterly carbon rebate payments. For example, the base amount for an individual in Alberta is $225, and in Ontario it’s $140.

The Conservatives have also used the “8 out of 10” figure cited by Ms. Freeland, but the other way around as they criticize the carbon tax.

Conservative Leader Pierre Poilievre holds a press conference regarding his “Axe the Tax” message in St. John’s on Oct. 27, 2023. The Canadian Press/Paul Daly

Citing figures from the Parliamentary Budget Officer (PBO), Tory MPs say 80 percent of Canadian households are worse off financially because of the carbon tax. This led one Tory MP to challenge Ms. Freeland on whether she trusts the PBO.

“Do you have faith in the parliamentary budgeting officer?” asked Alberta MP Jasraj Singh Hallan, his party’s finance critic, during the March 21 committee meeting.

“Certainly,” Ms. Freeland replied.

When asked if she believes in the PBO’s economic and fiscal analysis of the impact of the carbon tax, she didn’t answer directly but provided her version of the 8 out of 10 figure.

PBO Analysis

In an interview with The Epoch Times, PBO Yves Giroux discussed the various claims made by the Liberals and the Conservatives on the carbon tax.

He said the Liberals are right in claiming that about 80 percent of households get more back from the tax, though it varies by province. However, that’s only true when you consider the tax directly applied on fuel purchases, the tax indirectly paid when buying goods with an embedded energy component, and the GST on the tax, minus the rebate.

Mr. Giroux said, in that sense, Canadians on a net basis do “benefit from the flows in and out of their pockets off the direct tax.”

But it gets more complicated when doing a fulsome analysis of the carbon tax’s impact. The PBO conducted such an analysis and produced a report in March 2023.

Mr. Giroux said the carbon tax, like any tax, has an impact on the entire economy. It reduces economic activity in some sectors, such as oil and gas and transportation.

With the carbon tax, also known as the fuel charge, expected to rise from $65 per tonne of greenhouse gas (GHG) emissions to $80 per tonne on April 1, then to $170 per tonne in 2030, Mr. Giroux said it will “have a negative impact on a few sectors—some would say many sectors.”

He said this will lead to lower employment as well as lower corporate profits, which means lower dividends or lower returns on investments. “And any household that has shares, either directly [through their investments] or indirectly through their pension plans, will see ... this lower investment income, and some of them will see lower employment earnings,” he added.

Parliamentary Budget Officer Yves Giroux prepares to appear before a Senate committee in Ottawa on June 13, 2022. Justin Tang/The Canadian Press

Mr. Giroux said that when taking into consideration the negative economic impacts, the 8 out of 10 figure, or 80 percent, is flipped the other way around.

“Once you take these into account, then it’s the reverse 80 percent—about 80 percent of the households are worse off with the carbon tax than without,” he said.

Environment Minister Steven Guilbeault pushed back against the PBO’s analysis last year a few days after the 2023 Budget was announced on March 28, CTV News reported at the time. The PBO report does “not account for economic opportunities that come with driving clean tech innovation,” he said, referencing the budget and the funds it allocated for that sector of the economy.

The Liberal government is investing heavily in the sector by, for example, subsidizing electric vehicle battery manufacturers to the tune of billions and through other investment avenues like the embattled Sustainable Development Technology Canada and the Canada Growth Fund.

Mr. Guilbeault has also said the carbon tax is a measure to mitigate climate change and that paying it now will save billions in disaster relief later.

‘Redistribution System’

While the carbon tax’s main objective is to encourage reduced hydrocarbons consumption by imposing a financial toll, Mr. Guilbeault also told CTV the tax was “exactly” designed as a wealth-redistribution scheme.

“So the rich pay more for their carbon consumption and their carbon pollution, and we’re supporting, through the transition, middle-class Canadians and low-income Canadians,” he said.

Asked for his comment, Mr. Giroux said he doesn’t think the tax was designed to achieve that specific objective but can have that effect.

“The moment that you have a carbon tax that’s returned, or for which the proceeds are returned to households, on an equal per capita basis, it can be akin to a redistributed system, but not purely redistributed,” he said.

This is because higher-income households, which tend to have bigger houses or may drive more, might not necessarily pay more taxes, Mr. Giroux said. They might live downtown and walk to work, or reside in luxury condos that don’t require much fossil fuels to heat, and thus would not pay much in carbon taxes. He said lower-income families that live in poorly insulated houses or that may need to drive long distances to work might end up paying more.

“It’s true that overall, on average, it tends to redistribute incomes from higher-income households to lower-income households. But it’s not true in all situations,” said the PBO.

Mr. Guilbeault declared himself a “proud socialist” in the House of Commons in November 2023 after Conservative MP Ted Falk said the “costly carbon tax coalition” included the “socialists, the separatists, and this prime minister,” in reference to the NDP and Bloc Québécois supporting the Liberals’ measure.

Minister of Environment and Climate Change Steven Guilbeault rises during question period in the House of Commons on Parliament Hill in Ottawa on Nov. 28, 2023. The Canadian Press/Justin Tang

Besides the PBO’s analysis, there have been other studies conducted by academics on the issue as well. One such report, co-written by University of Calgary economist Trevor Tombe in 2023, looked at B.C.’s long-running carbon tax scheme and said it accounted for both direct and indirect costs.

The study concluded that the scheme has led to only a 0.3 percent rise in the price of food, and a 0.2 percent rise in the price of clothing. It said eliminating the tax won’t result in major savings.

Dalhousie University economics professor Sylvain Charlebois criticized the study for not “fully” considering the “compounding effects” of increased costs across the supply chain.

April 1 Hike

The carbon tax hike from $65 per tonne to $80 per tonne on April 1, a rise of 23 percent, represents an increase of about 3 cents per litre of gasoline and 4 cents per litre of diesel in provinces where it applies. By 2030, the tax would add over 37 cents to a litre of gas.

That’s if the Liberals are still in power. While the Conservatives have not yet been effective at changing that policy, facing a fully hostile House of Commons, their popularity has soared, with polls placing them easily in majority territory.

Amid an affordability crunch in recent years that have seen heightened inflation followed by higher interest rates, the Liberals appear to now be taking a political toll from the policy.

Facing pressure from Liberal MPs representing Atlantic Canada ridings, last October the government declared a carbon tax pause on home heating oil.

“We’ve heard clearly from Atlantic Canadians through our amazing Atlantic MPs that since the federal pollution price came into force, … certain features of that pollution price needed adjusting to work for everyone,” said Prime Minister Justin Trudeau in announcing the pause on Oct. 26, 2023.

Mr. Trudeau and Mr. Guilbeault have rejected calls for any more exemptions.

A woman pumps gas at a gas station in Mississauga, Ont., on Feb. 13, 2024. The Canadian Press/Christopher Katsarov

Leaders of provinces where the carbon tax exemption has less of an impact have protested or taken measures, such as Saskatchewan Premier Scott Moe. His province stopped collecting the carbon tax on home heating effective Jan. 1, a move that Mr. Moe says has helped inflation drop in his province to 1.7 percent in February, a full percentage point lower than the national rate of 2.8 percent.

Bank of Canada Governor Tiff Macklem said in October 2023 that abandoning the carbon tax would lead to a one-time drop in inflation of 0.6 percentage points. Inflation at the time in Canada was at 3.8 percent.

A majority of provincial leaders have also called on Ottawa to cancel the April 1 hike. This position is supported by 69 percent of Canadians, according to a Léger poll released in late February commissioned by the Canadian Taxpayers Federation.

Mr. Trudeau has resisted the pressure to cancel the increase, saying in mid-March that his job is “not to be popular” but “to do the right things for Canada now and do the right things for Canadians a generation from now.”

He also accused his political critics of being “short-term” thinkers.

Jennifer Cowan and The Canadian Press contributed to this report.