By Greg Fry

Removing neutrality from carbon tax a good idea? TRU prof weighs in

Sep 18, 2017 | 4:59 PM

KAMLOOPS — It was a centrepiece of their budget update last week, but does it make for good policy?

B.C. Finance Minister Carole James announced the NDP government would be removing the neutrality from the carbon tax, a policy that was first spearheaded by the Gordon Campell-led BC Liberals and continued through the party’s Christy Clark years.

“It really depends on what was being done with that revenue in the first place,” says Dr. Joel Wood, an assistant professor of economics at Thompson Rivers University. “They repealed the policy that forces them to make it revenue neutral in their budget document but at the same time the previous government, since about 2012, had been throwing existing tax measures, tax credits to special interest groups that already existed. They started putting them into that revenue neutrality box in the budget. So, already it was questionable whether the policy was revenue neutral.”

But during the Campbell years, when he says the carbon tax was truly revenue neutral, he argues it worked well.

“The carbon tax does raise costs to households and businesses in the province. And by giving general tax relief through reduced personal and corporate taxes, it removes some of these disincentives to work and invest in B.C. So, it creates an economic benefit by reducing those taxes, whereas spending on green projects probably won’t provide the same type of benefit.”

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That’s not to say the NDP policy won’t, says Wood.

“I think we’ll have to see where it goes because one thing they have committed to doing is giving larger rebates to households which they then will spend in the economy,” he says. “At the same time they committed to continuing to phase out the PST on electricity. Businesses paying PST on electricity is a distorting tax that then gets passed into the final prices making our businesses less competitive. So, that change will help businesses, too.”

He says increasing the carbon tax could also have another benefit.

“If B.C. wants to meet the emissions reduction commitments that we have made, an increased carbon tax is the best way to do that.”