The BC carbon tax – good idea, bad implementation

BC’s carbon tax was supposed to be “revenue neutral”, meaning all carbon tax revenue would be “recycled” to British Columbians through personal income tax cuts, corporate income tax cuts and a low-income credit. When the 2008 budget launched the carbon tax, we were provided with a forecast that had revenues precisely match recycling through tax cuts and credits, with about one-third of revenues going to each of PIT cuts, CIT cuts and the low-income credit.

But recent budgets have shown a carbon tax deficit: tax cuts have completely swamped carbon tax revenues. While some were concerned that the carbon tax would be a “tax grab”, instead we are a carbon tax is that is revenue negative not revenue neutral.

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Corporate tax cuts are now absorbing the lion’s share of carbon tax revenues. In 2010/11, they will be equivalent to 57% of carbon tax revenues, compared to one-third in 2008/09. Cutting corporate taxes is the worst possible way of using carbon tax revenues. This is because of the intense concentration of ownership of capital at the top of the income distribution (when you hear corporate tax cuts think upper-income tax cuts), and also because shareholders outside BC, who pay no carbon tax, benefit from corporate tax cuts.

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