Offset $1.75 Billion of GST on Carbon Pricing with Low-Income Rebate

June 8th, 2017

Regina–Lewvan MP Erin Weir is calling on the federal government, which will collect additional GST from carbon pricing, to consider funding a progressive transfer to lower-income Canadians similar to the Alberta NDP government’s carbon rebate.

Conservatives contend that GST should not apply on top of a carbon tax, but GST already applies to comparable levies such as Saskatchewan’s provincial fuel tax of 15 cents per litre of gasoline. The Alberta government charges a similar amount per litre: a fuel tax of 13 cents plus a carbon tax of 4 cents.

“The Conservatives have provided no rationale for exempting levies labelled ‘carbon tax’ from GST, while collecting GST on levies labelled ‘fuel tax’. In any case, GST will still apply to consumer prices increased by cap-and-trade systems,” said Weir. “Even if it were possible to remove the GST from carbon costs embedded in consumer prices, doing so would not adequately compensate poorer Canadians who must spend a larger share of their incomes on energy and other goods sensitive to carbon pricing.”

“Premier Rachel Notley’s NDP government has solved this problem by rebating a significant portion of carbon tax revenue directly to lower and middle-income Albertans,” continued Weir. “Unfortunately, Liberal and Conservative provincial governments have failed to emulate this progressive provision in their carbon pricing policies. But the federal government could use the GST it will collect from carbon pricing to do so nationally.”

The Library of Parliament recently estimated that Ottawa will collect up to $250 million of GST on carbon taxes in Alberta and British Columbia. However, the federal government plans to extend a carbon price of $50 per ton by 2022 across Canada, which emits more than 700 megatons of carbon-dioxide equivalent. That implies $35 billion of carbon pricing, which will yield annual GST revenue of $1.75 billion.

This additional revenue would enable the federal government to help those most in need through a new income-based transfer or by enhancing existing tax credits. For example, $1.75 billion would be sufficient to raise the basic personal credit by $800 for every Canadian taxpayer or to boost the existing GST credit (which currently rebates $4.6 billion) by a third.

“Ensuring that carbon pricing includes rebates to lower-income Canadians would help to fight both climate change and economic inequality,” concluded Weir.