Saturday, 16 February 2013

Campbell's hidden $200-million tax cut

By Mark Jaccard
Originally published in the Vancouver Sun June 9, 2011

British Columbia politics in 2010 were dominated by accusations that Gordon Campbell
used the HST tax reform, which he claimed was "revenue-neutral," as a sneaky way to
increase taxes. Few believed his claim, and plummeting public opinion forced him to
resign. In 2008-09, B.C. politics were dominated by accusations that Campbell used the
carbon tax reform, which he also claimed was revenue-neutral, as a sneaky way to
increase taxes. His party's 20-point lead in the polls evaporated, and he almost lost the
provincial election in May 2009.

By now, Gordon Campbell must detest the term revenue-neutral. As it turns out, with the
carbon tax, he shouldn't have used it anyway. He should have said "revenue-negative," or
just plain old "tax cut."

That's right. The evidence now shows that because of B.C.'s carbon tax reform, at least
three-quarters of us now pay less taxes to the B.C. government. But one never hears this.
Instead, people still complain about Campbell's punitive carbon tax. To Campbell, the
world must sometimes seem awfully cruel.

Recall, when introducing the carbon tax, the Campbell government committed in
legislation to offset all tax revenue it received with cuts to personal and corporate income
taxes, along with cash payments to lowincome earners who pay little or no taxes. It also
gives back to municipal governments most of the carbon tax revenues they pay.
The B.C. finance ministry's records for the first two years of carbon tax reform (July
2008 to July 2010) show that the government collected $848 million in carbon taxes and
gave up $1.042 billion via income tax reductions and payments to low-income people and
municipal governments. Thus, in its first two years, the revenue-neutral carbon tax was
actually a $200-million tax cut. (And this is not even including the $100 cheques from
general revenue the government sent everyone just as the tax kicked in.)

In theory, a revenue-neutral carbon tax reform should have left about half of British
Columbians paying less tax and half paying more than before, although for a large
percentage the net effect might have been close to zero. In other words, benefits from the
tax cuts would be roughly equal to the higher payments for more expensive fuels. But
because the carbon tax reform ended up reducing net taxes by $200 million, the
percentage of net winners is likely to be somewhat greater than 50 per cent of taxpayers.

And this is only half the story. Energy consumption data show that B.C. businesses pay
about two-thirds of the carbon tax, with individual consumers paying the other third. This
would be equitable if businesses also received about two-thirds of the benefits from
cutting corporate and personal income taxes. However, the Campbell government
selected income tax cuts for businesses and individuals such that the latter receive about
two-thirds of the "recycled" carbon tax revenue. With B.C. households paying about one third of the carbon tax and receiving two-thirds of the income tax cut, the carbon tax
reform is, in effect, a transfer from B.C. businesses to B.C. individuals. It's a great deal
for individual taxpayers and even most small businesses, but not for some large,
emission-intensive industries.

Reviewing data on fuel consumption by different levels of taxable income in B.C., my
crude estimate is that the combined effects of the transfer from industry to households
and the carbon tax cut mean that at least 75 per cent of British Columbian households are
paying less taxes today because of the carbon tax. The much smaller minority who are
paying more are mostly the very well-off for whom the income tax cuts cannot offset
their high fuel use.

When one contemplates the past three years of invective in the media against Campbell's
"carbon tax grab," it is quite a shock to contrast this with clear evidence that the carbon
tax reform reduced taxes for a substantial majority of British Columbian households. But,
having researched environmental policies for over 25 years, I have come to learn that it is
not what politicians do to us that is shocking, it is what we falsely accuse them of doing -
and then what we do to them in revenge. Gordon Campbell's trying carbon tax experience
only reinforces that lesson.

Who knows what we might learn about the HST's net effect two years from now -
assuming it's given a chance to last that long. Too late for Gordon Campbell in any case.

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