Good politics, bad policy

Written by Brenda Schimke

The cancellation of the made-in-Alberta carbon tax, the investment in the now-defunct Keystone Pipeline, the War Room, the Supreme Court challenge to the federal carbon tax, the investigation into funding sources of environmental charities, the continual attacks on the federal government—all might be good politics, but are they good policy decisions?

Sometimes governments have to be gutsy and put good policy ahead of good politics. Conservative Prime Minister, Brian Mulroney, was the gutsiest prime minister in my lifetime. 

He introduced the most unpopular tax of all time on Jan. 1, 1991—a seven per cent GST. It followed a reduction in both corporate and individual income tax rates and replaced the 11 per cent telecommunications tax and the 13.5 per cent manufacturer’s sales tax (MST).

Free market economic theory argues that moving away from income taxes gives workers an added incentive to put in longer hours and seek higher paying jobs, thereby increasing output. Free market advocates also argue that a broad-based consumption tax is the least disruptive in a free market.

I distinctly remember the price of new cars dropping a few thousand dollars after the GST was introduced, which was a significant amount in 1991. Just because we don’t see the taxes, doesn’t mean we aren’t paying them.

Under the US-Canada free trade deal, the MST was a costly impediment for Canadian manufacturers to become competitive with their counterparts in the U.S.

Fast forward to 2021 and we are basically in the same discussion—a hidden tax on pollution or an upfront tax. 

There are those who don’t believe in man-made climate change, but that falls outside the carbon tax debate since both Premier Jason Kenney and the Federal Conservative leader, Erin O’Toole, agree climate warming is real.

Jason Kenney argues that only heavy emitters, primarily our oil sands companies, should be paying a carbon tax, not individuals and businesses. His argument is a consumption carbon tax disproportionately hurts those who can afford it the least. He is correct. If consumption taxes, including the GST and the federal carbon tax, don’t include a rebate component for those who are least able to bear the extra costs, it is indeed a regressive tax.

The GST, although hated to this day, improved our international competitiveness and provided stable revenue for the federal government.

The carbon tax at the consumer level is an effective way to change consumer’s behaviour, promote innovation and reduce our carbon emissions. In contrast, carbon offsets and cap-and-trade are hard to identify, hard to measure and completely unintelligible for the majority of the population.

Only charging large emitters a pollution tax, as Premier Kenney wants to do, is equivalent to the MST of old. The cost to produce our oil and gas products would be higher, making investment in the oil sands less attractive and our hydrocarbon exports less competitive.

Had Kenney not eliminated the made-in-Alberta carbon tax, the Alberta Treasury would have had an additional $2 billion dollars per year to either rebate or invest in new green initiatives. By eliminating the Alberta carbon tax, we foolishly turned the authority to manage, rebate and spend carbon tax receipts over to the federal government. 

If we had not done so, grain farmers would have been dealing with Edmonton, not Ottawa, in their argument last fall to qualify for rebates on energy costs associated with drying grain.

University of Calgary economic associate professor, Trevor Tombe, an oft-quoted voice in conservative circles, said, “a cross-Canada consumer tax would allow Canada to meet greenhouse gas targets while ensuring heavy emitters (the oil sands) are not saddled with the lion’s share of the fees.”

Kenney believes fighting the carbon tax is good politics, but for our oil and gas industry and Alberta’s economic future, it is a very bad policy, indeed.

 

Brenda Schimke

ECA Review

About the author

Brenda Schimke

Schimke is a Graduate with Distinction from the University of Alberta with a BCom degree. She has lived and worked in Alberta, BC and Ontario.