TAX on a TAX

Simply introducing the tax will cost 9 million dollars a year. The GST will apply to the carbon tax, so it is a tax on a tax. Much more bad stuff coming. Nothing revenue-neutral about the PC carbon tax.

Nothing revenue-neutral about the PC carbon tax

Dan Lett - Winnipeg Free Press

Manitobans desperately need clarity about the Progressive Conservative government’s carbon tax. Instead, what we are getting is (to borrow from Sir Winston Churchill) a home-grown riddle, wrapped in a mystery, inside an enigma.

The recent provincial budget should — emphasis squarely on should — have been the opportunity for the government to reveal what it estimates revenues will be from the $25-per-tonne carbon tax, and what that money would be used for.

What we got instead was a series of often-contradictory policies and announcements that raise concerns, once again, that Premier Brian Pallister’s government can’t tell us what they’re doing because they may not know themselves.

The budget did have estimates of revenue to be generated by the carbon tax, but precious few details on how it would be spent. Late last week, Sustainable Development Minister Rochelle Squires tabled enabling legislation to help the government manage carbon tax revenues, which was a triumph of obfuscation that made it impossible to gauge the net impact on municipalities, businesses or individuals.

Why not clear the air and explain what will happen with the carbon tax revenues and how the tax itself will affect the province? The Pallister government is deliberately and cynically manipulating the budget, claiming one thing while doing something completely different.

To figure out what’s going on — and exactly where the Tory government is manipulating its budget — let’s go back to the budget measures related to the carbon tax. This is where two major deceptions become evident.

Deception No. 1: the carbon tax will be revenue neutral.

The Tory government has consistently said the carbon tax would be "revenue-neutral." The problem is that the math does not add up that way.

The carbon tax is expected to raise about $248 million annually. Given that the tax wouldn’t kick in until this September, revenues for the current budget year are estimated to be $143 million. To keep his promise, Finance Minister Cameron Friesen would have had to include corresponding tax cuts, credits or other benefits that would make the new carbon tax revenue-neutral. Instead, he pushed those concessions back a year.

The tax cuts for individuals — which will come from a bump to the basic personal exemption (BPE), the amount we are allowed to earn before paying any income tax — have been pushed back until 2019 and 2020. After taking into account a series of smaller, previously announced tax measures, $117 million of carbon tax collected this year will go straight into general revenues to support program spending.

In future years, the "revenue-neutral" pledge begins to look even shakier.

When the increase to the BPE is fully implemented in the 2020 budget, it will cost government $173 million in unrealized tax revenue. The other major tax measure announced this year that is pushed back to future years is an increase in the small-business tax threshold that will save smaller entities about $7 million a year.

When you add up all of the tax cuts the government has announced, it does not approach the magnitude of the revenue being collected. Not revenue neutral by a long shot.

Why would the government fall short of its revenue-neutral pledge? That’s where we get into an even bigger deception.

Deception No. 2: the carbon tax will not be used to help pay for the one-point cut to the provincial sales tax (PST).

From the moment it was clear Manitoba would have to impose a carbon tax, Pallister made it clear he would not use the revenue to help cover the enormous costs of keeping a pledge from the 2016 campaign to reduce the PST to seven per cent.

The problem is, medium-term fiscal forecasts suggest he will not have the fiscal capacity to make a cut that, using current estimates, represents $307 million in lost tax revenue. That means Pallister would likely have to borrow money, and add to the province’s net debt, to keep this promise, a controversial and politically risky strategy that could alienate some of his core supporters. This is where the carbon tax comes in.

Pallister has been resolute that Manitobans would get tax cuts equal to the total revenue from the carbon tax and a one-point cut to the PST. Now it seems the carbon tax will help in part to pay for the PST cut. We know this because the government accidentally admitted it last week.

In the news release detailing Squires’ porous enabling legislation, the last line confirms "the province will return all revenue collected from the carbon tax to Manitobans over the next four years through various measures, which include personal income tax relief, small business tax reductions, and rolling back the retail sales tax to seven per cent by 2020."

That’s a pretty big admission that appears more like a mistake than a change in policy, largely because it stands in direct conflict to statements Friesen made just a few days earlier.

When asked for clarification, an official from the premier’s office said the province expects to deliver tax cuts to Manitobans that exceed the total value of the carbon tax and the one-point reduction in the PST by 2021.

Perhaps, but in the next two years, the carbon tax will collect much more than the value of the tax cuts. And unless the government delivers additional tax cuts in the future, the government will be collecting hundreds of millions more in tax than it is delivering in cuts.

Here’s where tragic irony comes into play, because there is a strong fiscal argument for using carbon tax revenue to help eliminate the deficit.

Balancing the books is a much more important priority than cutting taxes. By attempting to do both at the same time, Pallister risks falling short on both pledges. He also risks adding to the perception that he is — in parliamentary lexicon — a frequent stranger to the truth.

The carbon tax demonstrates that Pallister is — in almost every way — the living embodiment of a riddle, wrapped in a mystery, inside an enigma.

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