Skip to main content

The federal carbon tax will generate more than $6.2-billion in revenue in four years, but government rebates will ensure the vast majority of Canadians paying it will come out ahead, the parliamentary fiscal watchdog said in a report Thursday.

As the Liberal government battles with conservative critics over the impact of the levy, the Parliamentary Budget Office (PBO) backed Prime Minister Justin Trudeau’s claim that 80 per cent of households in the four provinces affected will be net beneficiaries of the carbon-tax-and-rebate plan.

The tax kicked in on April 1 in four provinces – Saskatchewan, Manitoba, Ontario and New Brunswick – where provincial governments do not have their own carbon levy. The federal Liberal government also has vowed to impose it in Alberta if premier-designate Jason Kenney carries through on his promise to scrap that province’s carbon tax.

In the lead-up to a national election this fall, conservative premiers in those provinces have challenged the Liberal government in court over its authority to levy the carbon tax, while Ontario Premier Doug Ford is pursuing a campaign to focus consumers’ attention on the higher costs associated with the carbon tax while ignoring the rebates.

The federal government remains committed to returning all revenues to the provinces where they were collected, Environment Minister Catherine McKenna said in a statement. The tax is one of more than 50 measures the government is taking to battle climate change, the impacts of which “are already being felt around the country,” she said.

The PBO projected how much revenue the tax would generate in the four provinces where it applies, as the rate increases from $20 a tonne of carbon dioxide this year to $50 in 2022. There are two components of the tax: the levy on consumer fuels such as gasoline and natural gas, and the tax on emissions of large industry.

The PBO projected Ottawa will collect $2.4-billion this year from the consumer tax alone while, last October, Finance Canada forecast revenues of $2.3-billion in 2019-20. In 2022-23, the PBO calculated that federal revenue from the consumer tax would climb to $5.8-billion, while Finance Canada said it would be $5.6-billion.

Its analysis assumes the federal government will live up to its commitment – which is contained in legislation that established the carbon tax – to return all revenues to the provinces in which they were raised. About 90 per cent of revenues will go to households, while 10 per cent will be used to help small business and the broader public sector.

“We made an assumption – and some would say it is a stretch but I’m not that cynical – in that we assumed the government will do what it committed to do and that is return all the proceeds from the carbon levy to households and businesses," Parliamentary Budget Officer Yves Giroux said in an interview.

With that assumption, the report confirmed the federal claim that 80 per cent of affected households will be better off, while the top 20 per cent will pay more in carbon tax than they receive in rebates that are being delivered through the income tax system. That’s because high-income families spend more on goods and services than poorer ones and therefore will face a higher carbon-tax burden on everything from gas-guzzling SUVs and heating a big house to the purchase of consumer goods that are shipped on diesel-burning trucks. The rebate is the same per person regardless of income.

Taxpayers in the four provinces covered by the federal levy have been receiving the rebates – actually, prepayments to cover the coming year – when they complete their income tax filing this spring. The “carbon action incentive” is included as a credit on the federal form and is either added to a rebate or reduces an amount owing.

PBO economist Nasreddine Ammar said the rising carbon tax should provide an incentive for Canadians to reduce their energy use over the medium- and longer-term to save money, even as they continue to receive the full rebate.

Conservative Party MP Pierre Poilievre said the PBO report is tainted because the analysts relied on many Liberal government assumptions, though the economists did their own assessment of the costs, which included not only direct ones but higher prices passed on by business that have to pay the levy. “There are a lot of ‘ifs,’ in here,” Mr. Poilievre said. He said the report fails to account for the fact that carbon tax will drive up harmonized sales tax revenues.

In 2018, the federal government announced that all provinces would need to implement a carbon-pricing system by April 1, 2019 and those that didn't would fall under a federal carbon tax. But what is carbon pricing anyway?

Editor’s note: (April 25, 2019) An earlier version of this story said Finance Canada forecast revenues from the consumer tax at $1.77-billion in 2019-20 before climbing to $4.27-billion in 2022-23. In fact, Finance Canada forecast revenues of $2.3-billion in 2019-20 and $5.6-billion in 2022-23.