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Business Commentary Carbon taxes shouldn’t come at small, medium-sized businesses' expense

Peter Shawn Taylor is a journalist, policy research analyst and contributing writer to Canadians for Affordable Energy.

Not so long ago, Canadians were told a national carbon dioxide emissions tax was necessary because only through the pain of higher energy prices would consumers and businesses learn to change their behaviour, use fewer fossil fuels and usher in a carbon-free future. Now, however, we’re being promised this new tax will be painless and will make us all richer. If you think that sounds too good to be true, you’d be correct.

To sell its carbon pricing plan to the corporate sector, Ottawa has already promised large-scale emitters a rebate of almost the full amount they pay in carbon taxes. For consumers, the outlook could be even brighter. According to a report by the pro-carbon-tax lobby group Canadians for Clean Prosperity (CCP), a national carbon tax could leave Canadian households better off by as much as $1,800 a year by 2022. This new tax could put money in your pocket.

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So who’d pay the bill for all this extra cash? Having exempted big business and consumers, the CPP proposal would make small and medium-sized businesses shoulder the entire burden for its carbon-tax giveaway plans.

Prime Minister Justin Trudeau has vowed to impose a national carbon tax “backstop” next year on any province that refuses to do so on its own. Manitoba is the latest to announce it is abandoning its carbon tax – joining entrenched opposition in Saskatchewan, Ontario, Prince Edward Island and New Brunswick as well as muted obstruction in Nova Scotia and Newfoundland and Labrador. Alberta is also threatening to dump Ottawa’s carbon tax plan and certainly will if the province’s United Conservatives win next year’s election.

The CCP says the typical middle-class Saskatchewan household can thus expect to pay $685 in annual carbon taxes by 2022. This obviously presents a significant political hurdle for the Liberals, since carbon taxes have a well-deserved reputation as a loser at the ballot box.

To improve the palatability of a carbon tax prior to next year’s federal election, the CCP wants Ottawa to take all the money it collects under its backstop program and rebate it to consumers in that province as a “carbon dividend.” If households across Canada get a big enough cheque, the logic goes, they might be inclined to vote for the idea. For example, by 2022, CCP claims all Saskatchewan households could see a net benefit of between $1,435 and $1,864 each year. These numbers will be eye-catching for many struggling families. But is an election bribe this big even possible?

To ensure carbon dividend cheques are as vote-enhancing as possible, CCP proposes that Canadians be given back not only their own share of taxes paid, but also whatever is collected from business and industry as well. But under Ottawa’s Output-Based Pricing System, large-scale emitters have already been promised very generous subsidies to soften the blow of new carbon taxes. Most sectors, including oil sands and pulp and paper, will receive average rebates of 80 per cent of their carbon tax owing. Sectors at even greater risk of being wiped out by overseas competition, such as cement, steel and fertilizer, get subsidies of 90 per cent. As a result of relentless lobbying in Ottawa, the carbon cash from big business is already mostly gone.

This leaves small and medium-sized businesses – that bastion of entrepreneurship and job creation – to pay the bill. Firms that don’t qualify for large emitter rebates and aren’t politically plugged-in will get hammered by Ottawa’s new carbon tax. As was the case with the Liberals' ill-conceived small business tax-reform plans last year, the federal government should brace for another massive blow-back from this sector.

If the Trudeau government does extract huge amounts of cash from small and medium-sized businesses to fund their carbon tax bribe, this will have significant implications for the economy. “Our expectation is that competitiveness impacts would be somewhat exacerbated when carbon proceeds paid by business are given to households,” the CCP background study admits rather vaguely. In plain language: Economic calamity awaits as a brand-new burden is placed on Canada’s job creation machine.

Of course, Ottawa could choose to rebate back to households only those taxes collected from households – keeping the tax neutral for consumers, which is the model advocated by some economists and more-sensible carbon-tax proponents. But even this seems a dubious scenario.

British Columbia once said it would return every cent of its own provincial carbon tax to taxpayers through reductions in personal and corporate income taxes. And while it kept this vow for the first few years, political exigencies soon won out over promise-keeping obligations; that money was funnelled into movie production credits and other politically motivated but wasteful subsidy programs. With the election of an NDP/Green B.C. government, the link between carbon tax revenue and tax cuts has been permanently severed. Now it’s just another tax, like all the others. Canadians can expect a similar trajectory with any national carbon tax rebate after the federal vote on Oct. 21, 2019.

Free money from Ottawa may sound attractive to some voters, especially during an election. But a carbon dividend cheque, however big it may appear, is no prize for taxpayers. For small and medium-sized businesses, it could prove fatal.

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