If the Liberal government were to abandon the carbon tax entirely, inflation in Canada would drop 16 percent, says Bank of Canada governor Tiff Macklem.
Mr. Macklem provided this information while testifying before the House of Commons finance committee on Oct. 30.
“That would create a one-time drop in inflation of 0.6 percentage points,” said Mr. Macklem in response to a question from Conservative MP Philip Lawrence. Inflation is currently at 3.8 percent in Canada.
Mr. Macklem was visiting the committee to discuss the central bank’s latest policy decision to hold its overnight rate at 5 percent.
The central bank has been battling elevated inflation for months, and Mr. Macklem said his job is made harder by government spending.
“It would be helpful if monetary and fiscal policy was rowing in the same direction,” he said.
“Any standard economic textbook will tell you [that] if you cut government spending, that will tend to slow growth, raise the unemployment rate, and reduce inflation.”
Mr. Lawrence asked the governor if dropping the carbon tax would make his job easier given the “sizeable drop in inflation” it would create. Mr. Macklem replied it would only affect inflation for one year.
The Conservatives under Pierre Poilievre have steadily raised cost-of-living issues, accusing the Liberal government of driving up inflation with deficit spending and creating an undue burden on Canadians with surcharges on fuel.
Critics have seized on the move to say that if climate incentive payments really benefited Canadians, a pause of the surcharge on heating oil would not be necessary.