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moneysense.ca, 19/06/08
The Green Shift: A GST by Another Name
It seems that few people have any clue on what Stéphane Dion’s “green shift” will end up costing the average Canadian family. The National Post’s Political Editor sums up this opinion, writing:
It remains at heart largely a leap of faith. Mr. Dion says he can make it work, and you have to be willing to take him at his word on that. Though low-income Canadians would clearly benefit, the cost of that to the rest of the population is not clear. Also unclear is how the party would continue to fund the tax cuts once emissions went down and the related tax revenue disappeared.
The green shift book claims that the only direct costs for an “average” family will be an increase of $250 for heating their homes and BBQing. The document says that “the primary impact will depend on local energy sources, local weather and energy efficiency of the household”, without providing a cost estimate.
Let’s indulge in some speculation of how much the “green shift” will cost us indirectly. The $40 per tonne tax on carbon emissions will be levied on the wholesale level and will raise an estimated $15 billion in new revenue. Businesses forced to spend more on energy will find a way to pass on the entire cost to consumers. The 1% cut in the GST enacted by the Conservatives cost the Treasury $6 billion. That suggests that the indirect carbon tax component of the green shift will be equivalent to a slightly more than 2% increase in our spending. What do you call a tax that is applied on our spending? Don’t we already have one called the GST?
If our assumption that the carbon levy will amount to a 2% tax on spending is correct, Statistics Canada’s Survey of Household Spending provides us with an estimate that the “green shift” will cost an average Canadian household, which spends roughly $50,000 on current consumption every year, $1,000. Add the $250 in estimated direct costs and the green shift is likely to cost $1,250 per year. Note that the tax benefits for a couple with one child living in Ontario and earning $80,000 is estimated at $1,012 according to the “green shift” calculator. This rough analysis gives credence to the Liberal claim that the policy will be tax neutral.
As the “green shift” proposes to refund the carbon tax in the form of income tax cuts, the policy amounts to increasing the tax on consumption while offering an equivalent cut on income. Canadians who save a significant portion of their income are likely to benefit from this policy as money sitting in a bank or brokerage account isn’t emitting any greenhouse gases. Most Canadian families in the middle income brackets that spend most of their income are likely to be more or less in the same financial situation as before. Big spenders are likely to be hit the hardest.
Here’s my question though: assuming that greenhouse gases are a problem that must be addressed (for the record, I think it is), does anyone seriously believe a 2% tax on spending is going to achieve it? Informed comments are welcome.
Note: This or That will return next week. Have a nice weekend!
moneysense.ca, 19/06/08
I think equating this with the GST is a little bit off. This isn’t a sales tax, it’s an excise tax. The big difference is that while both can be avoided, excises taxes are targeted, so you can avoid the tax not by consuming less, but by changing your consumption patterns. I don’t think there’s a doubt about the effectiveness of such a tax – if you can come up with a technique or technology that can save 2% of costs across an entire industry, I think you have a product that can generate a tidy sum of income for you.
I do find it interesting the opposition in the NP to the green tax. I’ve heard for years complaints along the lines that we shouldn’t punish people and businesses that contribute to the economy by taxing them excessively on their earnings. The same newspaper now seems to be against a shift away from income tax to excise tax? (which you can avoid by changing what you spend your money on)
That said, I do think that as the economy adapts to the tax, we will feel a bit of a pinch. Just like when NAFTA was signed, we suffered a bit as industries that couldn’t compete closed and workers and capital adjusted to new industries that were more lucrative, I think the same will happen as the polluting industries cut back on production, while new industries dedicated to helping us avoid the tax open up.
It won’t be easy, but just as with NAFTA the benefit was in the long term, I think the same thing will be happening here.
This is a subject area where anybody who posts would probably just show their political colours. So, just to get the record straight, I didn’t vote for the Conservatives, Liberals NOR NDP in the last 3 elections. My views are quite Libertarian and so now you know where I’m coming from. So with that being said…
I strongly dislike the way that taxes are structured now because our income taxes penalizes people who try to save money (eg. interest is fully taxed at your marginal tax rate) and corporate taxes penalize companies that make a profit, which discourages profitable companies from remaining in Canada.
Philosophically speaking, I think there shouldn’t be any personal income taxes and it should ALL be based upon consumption taxes, which would encourage savings. Albeit it would make things like the RRSP and the new TFSA for 2009 completely useless – but look at it this way: it would greatly simplify our lives when April 15th rolls around. Also on a purely philosophical level, we shouldn’t penalize corporations for making a profit – we should eliminate corporate taxes in the way that they are currently structured and instead make companies pay a pollution tax instead. So, for example, if you have a software development company or financial service company, or law office or anything else which can get control of their waste, then I would suggest that they shouldn’t pay any taxes at all – if they aren’t harming us, why harm them? So, the companies who currently don’t make any profit but pump all kinds of chemicals into our atmosphere and drinking water should be taxed heavily in order to pay for the eventual cleanup that has to be done, instead of giving them some kind of exemption because they don’t make any profits… That would also give an incentive to companies who pollute to clean themselves up IF they choose to remain here. If they don’t stay in Canada, then good riddance, we like our rivers and forests to retain their “earth tone” colours… Not all fuschia.
Q: “Here’s my question though: assuming that greenhouse gases are a problem that must be addressed (for the record, I think it is), does anyone seriously believe a 2% tax on spending is going to achieve it?”
A: According to http://www.cbc.ca/technology/story/2008/04/22/tech-canada-greenhouse.html, Canada has 0.5% of the world’s population and we are responsible for 2% of the world’s GHG emissions. Dion’s plan obviously will not solve the world’s Climate Change problem on its own. However, it is a good first step. Canada must move from being an environment laggard into a leadership position. I think that we can do even more than Dion is suggesting, but we need to start with some baby steps.
… and I agree with RI: comparing tax shifting to the GST is like comparing apples and three-eyed fish.
I believe incremental solutions are the way to go in addressing climate change. Kyoto was designed from the start to be an incremental solution, and the people who negotiated it always saw it as a first step, not “the” solution to climate change. It barely begins to address the problem,but it’s a step in that direction. Same goes here. A 2% tax may not significantly reduce Canada’s contribution to climate change on its own, but keep in mind that it’s just part of a larger system of measures underway to reduce greenhouse gas emissions in Canada. And also keep in mind that the 700 largest emitters (power plants and energy-intensive industries) account for a good chunk of Canada’s emissions so in fact this tax will have an effect.
Climate change is not like most other environmental problems (e.g., ozone depletion, acid rain) where you have a limited number of sources. With climate change, everyone’s an emitter. The solution is tantalizingly simple: reduce the use of fossil fuels. But because our economy runs on fossil fuels, you can’t make the switch overnight. It’s going to take decades, and it has to be done carefully.
Will it be done quickly enough to minimize the projected damage from climate change? I doubt it, but the stakes are high enough that I think we have to try. And while there are plenty of uncertainties in the science of climate change, nearly all political decisions are made in the face of uncertainty. Uncertainty has never been a valid reason to avoid action, unless you know that the uncertainty is likely to be cleared up soon — which is not the case here; the climate system is way too complex for that.
Science isn’t done by vote; one person who is right is worth 10,000 who are wrong. But when you’re a policy maker faced with having to make decisions on high-stakes problems you have to pay attention to the majority of experts and the current weight of the evidence. And in this case, the weight of the evidence (as compiled by the Intergovernmental Panel on Climate Change and subjected to painstakingly thorough peer review by skeptics and “believers” alike) suggests that climate change is a real problem and that humans are the leading cause.
R I: It’s true that the carbon tax is targeted but unlike an excise tax on, say, tobacco, a carbon tax affects every single individual and business. Let’s say that Future Shop spends 10% on energy and its costs went up 20%. They’ll, more likely than not, increase costs by 2% across the board. It’s true that the 2% is an average estimate. Some will be a lot more and some will be a lot less. Since it will take a while to reduce energy use, the carbon tax component will feel like a sales tax initially.
I think I’m warming up (pun intended) to the idea because I think it is akin to a tax on consumption and provides a cut in income taxes.
Gus: Nice imagery but the point I’m trying to make is that on average it will feel like one, at least initially. Not that that’s a bad thing though because you want to tax bad things and reward good things.
brad: My opinion on climate change is similar to yours because even if there is, say, a 25% chance that our activities are causing warming, we better be prepared to do something about it. We can’t pack up, leave Earth and go to Mars.
This plan would be a move in the right direction, the only problem is that it doesn’t go far enough. If the result is revenue neutral then it’s not going to change anyone’s behaviour. A few might take advantage of the opportunity to save by using less energy, but most would continue as usual.
Hey Phil S, you’re filing your taxes two weeks early. In Canada we have until April 30th to file.
While Future Shop might increase its prices temporarily in response to the tax, I think the aim is to encourage companies to invest in energy efficiency improvements to bring their costs down. While this generally requires an up-front investment, the payback periods tend to be very fast (often less than a year) and energy efficiency improvements tend to come out very favorably in the battle for capital within companies.
You would think that if energy efficiency were so profitable, businesses would have focused on it long ago. But inertia is a powerful force, and furthermore many companies just aren’t very energy-aware. But that is changing; in the US companies are falling over themselves in an effort to become more energy efficient, and saving billions of dollars in the process. It’s completely justifiable on a bottom line basis alone, you don’t even have to consider the environmental benefits.
I’m still digesting the tax plan, but at this point (despite my reluctance to support the Liberals [not that I'm a fan of Harper's govt' either]) I would suggest it’s a good plan. The only drawbacks are that a) it’s going to push carbon-emitting industries offshore to where there are no regulations, and b) it’s being presented by someone who has very little chance of being elected and making it policy. Regardless, it would give us an opportunity to be a global leader in a green tax shift, and also would hopefully stoke Canadian industry to develop efficient/alternative technologies that could then be applied to developing economies as well.
In the past, didn’t we have a tax applied to the wholesale level? I thought it was called a manufacturers sales tax that was levied at 13.5%.
And wasn’t that MST replaced by the GST by a Conservative government in 1991?
And now is a Liberal minority now planning to reintroduce a manufacturers, opps, I mean a green carbon tax at the manufacturing level?
I have no political affiliation. I just don’t like taxes although I prefer the GST to a MST. At least milk, kids clothes, and other basic necessities are exempt under and GST.
Oh, and will that green carbon tax be placed on exports? Wouldn’t that hurt our manufacturing jobs here in Canada? The auto industry suffers enough without this extra blow.
Wouldn’t we just rely more heavily on imports (that aren’t subject to the carbon tax)? Imports from places like China, India, the US, that do not have a manufacturer’s, oops, I mean a green carbon tax applied to them?
How does this help lower global greenhouse gases?
Steve, Philip: I recall reading somewhere that there are hints that the carbon tax would be harmonized with other developed countries. i.e. if Sweden had the same tax but Finland didn’t, a tax won’t be imposed on Swedish imports but Finnish imports would be taxed.
When everyone switches away from products and services that are carbon taxed…the government will lose revenue? Or will they increase personal taxes back up as people choose non-taxed products?
Wouldn’t another problem (if you believe this man made carbon climate change nonsense) be that producers of the products that are taxed will find ways of making their products cheaper. Consumption would stay the same or increases in that case as they are making their product cheaper per tonne, no?
I wonder if humans will be taxed for breathing? We each produce approximately .9kg of CO2 a day apparently. Thats 328.5 kg a year. That’s $13.14 a year in carbon taxes! No government would pass that up.
Human breath is part of the natural carbon cycle, which is in balance with itself. We’re just talking about carbon dioxide from fossil fuels, which were removed from the natural cycle millions of years ago. Now that carbon is being reintroduced to the system faster than the natural sinks can absorb it, and that’s what’s causing atmospheric concentrations to rise.
If making product cheaper per tonne involves using less energy (or at least less fossil-fuel-derived energy), then it doesn’t matter if consumption stays the same or increases. In fact the aim is not to tax consumption per se, but the fossil energy embedded in the products and services we consume.
This sounds pretty complicated. I definitely prefer the shift to a consumption tax from an income tax but this is going to be an implementation nightmare. I would just prefer that they increase the GST up to 10% or just increase the tax on the G part of the GST. If you are purchasing anything tangible you are creating CO2.
There is no way that if a %50 increase in fuel prices doesn’t curb consumption that a few pennies is going to do anything.
The increase in fuel prices IS curbing consumption. The Detroit 3 are swimming in red ink because they can’t give away their big-A SUVs and trucks while Toyota just announced that they can’t make hybrid batteries fast enough. It just takes time for the shift to happen with big-ticket items. Few people are going to trade in a 2-3 year old V8 land-ship for a Prius . It’s even more difficult since I heard that a lot of dealers won’t even take the big vehicles in trade because nobody’s buying them. Wait for the Tesla sedan. $10/fill and 200 mile range.
“Human breath is part of the natural carbon cycle, which is in balance with itself.”
Ah, so it doesn’t matter how many humans are on the face of the Earth, the gases all balance out. I guess that is because we are not producing humans and animals fast enough to disrupt the natural cycle.
Tony: It’s true that high gasoline prices are driving people to buy smaller cars. I personally know people who’ve traded in their SUVs for a Echo or other small cars. I would definitely love to trade in my creaky old Accord for a car like the Volt. Too bad, it is estimated to be priced at $35K.
$: That’s almost 3 tonnes of carbon from breathing. For a family of 4 that would mean a tax of 12*40 = $480.
I saw an article today that countries that implemented a carbon shift are grappling with this issue – i.e. the shift was successful that revenues from the carbon tax plummeted over time. Don’t worry though. Governments will find a way to get more revenue.
This tax is not like the GST. The GST is a consumption tax and is applied only to the consumer of any product. This carbon tax is just the opposite. It starts at the producer and through values added (read costs) and markups it mushrooms through the whole system. This is a tax that is the antithesis of what the Liberals were complaining about when the Conservatives lowered the GST instead of personal tax rates.
CC:I can see how it would appear that in the short term, this green tax is like a sales tax, but the difference is that it doesn’t impact all sales equally, and people will change some of their behaviours in the short term to avoid the tax.
TonyR: The increase in fuel prices still doesn’t factor in the externalities from pollution. Yes, the increase in prices is curbing the consumption of carbon, but the price only reflects the costs of extracting and refining oil from the ground. I think the point of the green tax is to ensure the other costs from GHG emissions (ie. increased health care costs from a degraded environment, etc.) are taken into consideration by the consumer of oil. That’s something that has to be added on top of the cost of extracting and refining oil.
Phil S: I regularly hear people complaining that corporate taxes punish successful corporations. I regularly assume it’s because people don’t understand why we have corporate taxes. We have them because, essentially, corporations don’t pay tax, people do. Without corporate taxes, you would only pay tax on a dollar earned when you receive a dividend. So there would be a strong disincentive to receiving dividends. But to be fair, there really should be no difference in taxes between someone who earns $1 in a corporation and leaves it there, and someone who takes a dividend and ploughs that money back into the corp. With the tax integration mechanisms, we have the fairness.
Brad, $: Fortunately for us, the C in the CO2 we exhale comes exactly from the food/water/air we consume. If they were to tax us on our C emissions, we should get a credit for the C that we eat. It also means that we don’t need to get ourselves all out of breath about the sheer quantity of CO2 in cow flatulence.
RI, actually the problem with cow flatulence is methane, not carbon dioxide. On a molecule-per-molecule basis, methane is 21 times more powerful than carbon dioxide in terms of trapping heat in the atmosphere. Speaking of things flatulent, I keep inadvertently leaving the “f” out of Shift when I write Green Shift — it must be a Freudian slip (I’m obviously not opposed to the proposal). I think the Liberals kind of set themselves up for that one.
The devil is in the details and they are far from clear. What is rural? I live on a farm in the “expanded” Ottawa with no choice other than heating oil, electricity, or wood to heat my home. Am I rural or urban? Heating oil prices have incresed just like gasoline. I can buy a more efficient car but I already have an oil efficient furnace and keep my thermostat down. Best way of lessening the hit – burn wood! Is that what the new “tax” is supposed to encourage?
It is a tax, just another in a long line of them. It won’t help the environment, it will just be another burden to bear. It should be called the Green Shaft because that is what it will be.
Gee another politician with a new tax what a surprise. Anyone figured what all the new green taxes that all levels of government are piling on will cost the general taxpayer.?
I have not read all the comments so forgive me if I am about to say something that someone else has posted.
Dion’s tax in my opinion has not been well thought out. Why would you exempt gasoline from the tax but include natural gas and diesel? It does not make sense. You have to treat every fuel the same to avoid be a hypocrite which apparently Dion is. For starters, exempting gasoline won’t encourage people to drive smaller cars. Taxing diesel will hurt truckers who haul all our food from afar during winter months. As well taxing very fuel efficient diesel cars is punishing those who get over 60 miles/gal. The only reason Dion doesn’t want to tax gasoline is because it will NOT sell politically. If you are going to make bold moves then have a good reason for it; don’t pick and choose which fuel to tax based on politics but on facts.
Another example is that is kinda gets cold in Canada unless Dion hasn’t noticed. I can’t choose whether or not to heat my home. I have to heat my home. The best way to do it apart from spending tens of thousands on geothermal heating is by natural gas. So Dion is punishing me to having to heat my home yet he is exempting me if I choose to get into a gas guzzling car. By the way I drive a fuel efficient car. Doesn’t anybody else see the hypocracy?
First of all the debate really must come round to this question: Is so called global warming (or climate change to cover your butt) caused by man and is it really the “settled science” some scientists and the media claim it to be (I am an academic in earth sciences for ~ 20 yrs can unequivocally state many earth scientist do NOT believe this is so). In fact, more and more of my colleagues are starting to seriously doubt and challenge the human-caused global warming theory as new evidence and data comes to light. Earth climate has always changed over geologic timescales and on shorter time scales for a host of complex reasons, including that massive nuclear reactor in the sky whose role in thermoregulation and energy flux is still not fully quantified. Know well that CO2 is NOT a pollutant, its largely a response variable to varying solar inputs and effect on the water cycle (sun-water-plants) and its minute ppm changes in concentrations have always varied over time. People have added a wee bit of “stored” CO2 in the last century. So the key question is, has the wee bit of CO2 people have added made any difference and by how much? NO ONE really knows for sure. The only “evidence” for a linkage are global models correlations of CO2 (or more accurately energy terms since CO2 is not a variable in any GCM!) with other recorded / proxy variables (many of them quite dicey). But always remember – in extremely complex systems like the Earth in a Universe, correlation does not neccesarily mean a cause (you might be missing something you did not know about). If the “stock” being sold is Global Warming(TM), then given then massive uncertainty of the prospectus (rarely honestly portrayed), no one would buy it – its way too high of a risk.
Unfortunately, most Canadians have unwittingly swallowed the theory as truth, for worse I fear. In my view the Liberals with their Green Shift are essentually, craftily, exploiting the general good will of Canadians to “do something about it” to make a sneaky election platform designed to garner votes in Ontario and Quebec in order to win power (the name of the game). Given that big $$$$ will flow from west to east under this plan via promised income tax cuts, it should more honestly be called NEP v2.0. Note the plan has no targets for CO2 – another revealing insight that suggests this has nothing whatsoever to do with carbon or with the environment. The GreenShift is actually a disguised Greenback Shift.
I am all for conservation, big time, and I know history will judge us harshly by how we squandered over 200 million years of accumulated energy in less than 200 years. But the Green Shift is not an environmental or meaningful conservation plan at all. Its all politics.
I agree Les, the more I read about anthropogenic global warming the more I realize we have no idea what’s really driving climate change. I agree that we need to figure out how our world and solar system works, just at this time we have not near enough evidence to start making policies.
I attack Dion’s Tax Grab from a different angle, inflation. This year the GST cut was masking the CPI number by about 0.6% according to Stats Canada, also the Bank of Canada is worried about inflation being higher next year; already they halted cuts and talks of interest rate increases at the first signs of things getting too high. Now what happens next year when you add a large consumption tax on top of goods prices?
What you get is the Bank of Canada scrambling to keep up with rising rates. With rising rates comes homeowners tightening, businesses making due with what they have, general slowing down of everything . . . including our employment numbers.
There is a reason that 77% of the people on Yahoo Finance when asked if they agree with the Liberal Green Shift plan voted “No – It’s just a massive tax grab “. That’s because people who are interested in money flow and know how the economy works realize what it is. I wonder what would happen if you put the same voting question on CBC’s website if the answers would be near the same?
Couple of comments:
1) Global warming, there’s two options on this
a) its real we should address it
b) its not man caused. It still in our interest to slow it, but even broader, there are alot of negative impacts from energy consumption beyond global warming, smog, urban sprawl etc
2) Is the tax large enogh?
this question realy misses the boat, the idea is not to create such a large tax that nobody can afford to buy a hummer. Rather to create an incentive to buy the vespa. A large tax gives nobody a chance to change practices and bankrupts a large number of people. A smaller tax will effect peoples habits on the margin. Those choices they can make as opposed to making choices nessecary.
3) revenue neutrality
This doesnt make the tas ineffective, because the rebates are unconnected with carbon consumption, an individual will recieve a net benifit from switching away from carbon consuption and still recieving the rebates, conversly despite recieving rebates, increasing carbon consumption woul reduce an individuals net welfare as they pay more tax and recieve no increase in the rebate.