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How to Make Canada's New Carbon Tax Work in Your Favour

The new regime imposed by Prime Minister Justin Trudeau doesn’t change anything for at least six months, and that gives you a head start to safeguard your finances.

by Anne Gaviola
Oct 26 2018, 4:03pm

Photo via Shutterstock

Earlier this week, Prime Minister Justin Trudeau announced a price on pollution to combat what he calls “the biggest challenge of this generation.” That means the federal government is imposing a carbon tax on the four provinces whose pollution pricing strategies weren’t considered adequate: Ontario, Manitoba, Saskatchewan and New Brunswick. If you live in one of these provinces, there are a few changes to keep in mind. They don’t actually kick in for half a year, but the point is to get you to think about them and start making choices now to minimize the future impact on your finances. If you play this right, you could actually come out ahead.

A rebate, and then some

First of all, you’ll be eligible for a rebate, as part of what’s called the Climate Action Incentive. When you file your taxes in the Spring, the average single person will get a rebate ranging from $128 in New Brunswick to $305 in Saskatchewan ($154 in Ontario, $170 in Manitoba). If you owe the government money, that amount will be deducted from your total owing. There will be an additional ten percent for people in small communities and rural areas. The rebate is subject to parliamentary approval.

That rebate is designed to be an offset, plus a little extra. That’s because right around the time you file your taxes (if you’re not a procrastinator), you’re likely to see prices for fossil-fuel related goods creep higher. Isabelle Turcotte is the Federal Policy Director at the Pembina Institute and the Trudeau government has consulted with her on shaping environmental strategy. She says “it might translate to a slight increase at the pump when you’re filling up and your natural gas bill if you’re heating your home that way or if that’s how your stove works. There might be a little bit of a propane price increase for your barbecue as well.” You could also see the cost of domestic flights tick higher because the cost of fuel for airplanes is going to go up.

According to federal government estimates, the carbon tax will mean a price increase of 4.4 cents per litre on gas prices next year and natural gas will be more expensive by 3.9 cents per cubic metre. These additional costs ramp up with time, and they are put on the producers and exporters of coal and fossil fuels, who will pay the federal government a set price for polluting. The expectation is that they will then pass them on to the businesses and the people who buy their products.

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Justin Trudeau discusses federal carbon tax with Humber College students in Toronto. Photo via the Canadian Press/Nathan Denette.

Critics have referred to this move as a tax grab and the rebates a gimmick, but the plan is for all revenue collected by Ottawa to be returned to the provinces from which they originated. 90 percent of the revenue is supposed to go back to everyday people via the rebates. Even though we don’t have specifics, the other 10 percent is earmarked for institutions that may have trouble passing on those higher costs. “Those include small and medium-sized businesses, colleges, universities, Indigenous communities, non-profits and hospitals,” says Turcotte.

The federal government estimates 70 percent of households affected will get back more than they pay in extra direct and imbedded costs. That’s for Canadians with “average” energy consumption habits. Economist Pedro Antunes says millennials have the opportunity to see less of a dent to their personal budget with the new carbon tax because they’re less likely to own a car than previous cohorts. Research shows Gen Y is delaying car purchases-- some indefinitely.

The opportunity for younger Canadians

If millennials change their behaviour to mitigate the impact of the federal carbon tax, then they can come out ahead financially. This strategy depends on industrial emitters to pollute less and on everyday people to alter their consumption habits. The goal of the price increase at the pumps, for example, isn’t just to sway people to consider alternatives to driving, like ridesharing, carpooling, public transit or cutting out unnecessary trips entirely. Antunes, who is Executive Director at the Conference Board of Canada, says we’ve seen spikes in the price of gas several times in recent history and a little sticker shock at the pumps hasn’t changed behaviour, a phenomenon known as “inelastic demand” in Canada.

According to Antunes, the most powerful tools is communicating this planned increase in the cost of fossil fuel energy, because these things take time. “For someone who has a gas-guzzling SUV, they’ll be stuck with it for a few years. But if they know prices at the pumps are going to increase at constant increments, we are hopeful this will effectively change behaviour,” he says.

Cheapest way to combat pollution

A carbon tax approach is one that Canadian economists on all sides of the political spectrum agree is among the cheapest ways to fight pollution. It’s rare for economists from right and left-leaning think tanks and institutes to see eye-to-eye. There are disagreements about the details but not the overall tactic. Antunes, like many of his peers, says this cost-effective measure won’t be enough if it isn’t accompanied by other strategies which will be more expensive.

For now, the broad strokes have been revealed and time will tell how much, if any, tinkering will need to be done. He says he hopes the policy remains in place long enough to make a difference in Canada’s emissions targets, which it is in danger of missing by a wide margin. “How much we need to price those things to change behaviour enough to reach those international targets that we want, that remains to be seen. We used to call these ‘sin taxes,’ and this is just pricing pollution which has very real costs on the economy.”

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