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Since the 2015 election campaign, the federal Liberals have brandished the idea of putting a federal price on carbon pollution as a centrepiece of their strategy to fight climate change.

The idea was straightforward. Ottawa would impose a minimum price on carbon, either directly, or by endorsing a provincial plan that adopted that same carbon-cost floor. But, as this week’s Tax and Spend lays out, that straightforward notion has become convoluted in practice.

The distortions are greatest in Newfoundland and Labrador, where for the most part, drivers don’t pay a carbon charge at all. Because the provincial government has cut existing taxes on gasoline, the carbon pricing has added just 0.63 cents to the cost of a litre of gasoline. Home heating fuels are entirely exempt. There’s a similar story in Prince Edward Island and New Brunswick, although the incremental carbon costs are slightly higher in those provinces.

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Why does this matter if you live outside the Atlantic provinces? First, there’s an issue of economic and political equity. The argument that Atlantic politicians have made to justify the exemptions that they have won – affordability and economic competitiveness – certainly apply in other parts of the country. And it’s hard to see how having a lax standard in the East and a tougher one for the provinces still resisting carbon pricing will help to win over the holdouts.

But those exemptions also eat away at a core principle of carbon pricing, namely that every jurisdiction needs to do its part. One of the arguments that Canadian opponents of action on climate change make is that this country’s emissions are too small in a global context to really make a difference. The rebuttal from supporters of climate-change action is that every molecule of emissions reductions is needed if global warming is to be stopped.

That’s as true in St. John’s, Fredericton and Charlottetown as anywhere else in Canada.

Taxing Questions

Can the costs of a mandatory quarantine at a government-designated hotel be deducted as a medical expense? A reader who says he’ll soon be paying for such a stay sent that question in by e-mail.

The short answer from the Canada Revenue Agency is: No. “Amounts paid for quarantine costs to comply with a three-day government-imposed stay at a government-authorized hotel do not meet any of the specific circumstances described in the Income Tax Act to be considered eligible medical expenses,” the agency wrote in an e-mail. “It is therefore the view of the Canada Revenue Agency that such amounts are not eligible medical expenses for purposes of the medical expense tax credit.”

The part of the Income Tax Act that details eligible medical expenses does allow for board and lodging expenses in certain narrow circumstances, limiting such reimbursement to specific situations such as the costs incurred by a person who needs a service animal, or by someone who is undergoing a bone marrow or organ transplant.

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Line Item

Limited time offer: Rather than spend $70-billion or more on economic stimulus, the federal government could instead cut the GST temporarily to 2 per cent from the current 5 per cent to entice consumers into spending the tens of billions of dollars that they’ve socked away during the pandemic, writes University of Toronto economics professor Michael Smart in FinancesoftheNation.ca. To further speed up consumer spending, Prof. Smart writes, Ottawa could lay out a plan to later boost the GST to 9 per cent – enhancing the tax benefit from an immediate spending spree.

Pension planning: The base Canada Pension Plan is not sustainable, by a small margin, the Parliamentary Budget Officer concludes in a recent analysis, a contrast to the finding of the Office of the Chief Actuary. The PBO says its differing assessment stems from its lower estimate of the ultimate yield on long-term Government of Canada bonds, which equates to lower rates of return for the plan. The PBO assumes yields of 3.25 per cent compared with the 4.6 per cent used by the chief actuary. However, the PBO notes that the resulting funding gap isn’t that large: Benefits would need to fall or contributions to increase by just 0.054 per cent of GDP.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

Sign up for the Tax and Spend newsletter here

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