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Most Canadian families are better off under federal carbon pricing because the amount they receive in rebates from Ottawa are bigger than the carbon charges they pay.

That has been the mantra of the federal Liberals since carbon pricing was launched in 2019, and it has been true for the past three years, with rebates paid at the start of the fiscal year that more than cover carbon costs for about 80 per cent of households.

But that won’t be the case for the next three months, with a delay in moving to quarterly payments of those rebates, which are paid out to households subject to federal carbon pricing in Ontario, Manitoba, Saskatchewan and Alberta.

Last year, the government announced that it would shift to quarterly payments made through the federal benefit system instead of a refundable credit claimed on personal income-tax returns. That changeover was supposed to happen on April 15, two weeks after carbon charges increase to $50 a tonne from $40 a tonne. The carbon cost for gasoline, for example, will increase to 11.5 cents a litre from 8.84 cents a litre.

If it happened as originally scheduled, the move to the quarterly system would have ensured that all eligible households got payments before they incurred any substantial carbon charges for the year. Under the system of refundable credits, the timing of the payment depended on an individual filing their tax return. If one filed in late April, that refundable credit might not land in a bank account until May, several weeks into the fiscal year.

But the move has not happened as originally scheduled, with the Canada Revenue Agency saying it needed more time to develop the system of quarterly payments. The start of the quarterly payments has been pushed to mid-July, when households will receive money for the April to June period and a payment for the July to September period.

That means that households will be out of pocket for three months, until that doubled-up payment arrives. (And don’t expect any interest to be added on to this delayed payment; the CRA said that the statutory interest costs appended to some categories of money owed to taxpayers won’t apply in this case.)

So, why will it take nearly 15 months to launch the quarterly payments, following the goal set down in the federal budget in April, 2021? In an e-mail, the CRA said it could not begin its work on integrating carbon-charge payments into the existing system of quarterly benefit payments “until all administrative aspects of the program were identified in the draft legislation released in December, 2021.”

The agency says it had about six months to makes those changes, which it says include “a significant amount of programming and testing.”

That leaves the question of why it took until December – eight months from the budget – to release the draft legislation. The Finance Department did not provide a response to that question. But there is one obvious factor: the summer election campaign, which placed the federal bureaucracy into caretaker mode for weeks.

Whatever the explanation, federal carbon pricing will, temporarily, be a net expense for families in Ontario, Manitoba, Saskatchewan and Alberta – just as surging inflation and rising pump prices bite into household budgets.

Taxing questions

Responding to a recent Tax and Spend on Alberta’s planned reduction in fuel taxes, one online reader questioned why that move was described as “progressive,” intimating that it was being praised as a left-wing measure.

In fact, that reader was conflating two meanings of the word “progressive.” Yes, it is used in politics to denote left-leaning policies. But in economics, it has a much more technical meaning: does a certain spending or tax measure leave lower-income households or individuals relatively better off than higher-income households? In which case, it is progressive. Or does it leave those lower-income households or individuals relatively worse off than higher-income households? In which case, it is regressive.

So in that sense, income taxes are progressive: higher earners don’t just pay more tax, they pay a higher rate of tax. Conversely, sales taxes are regressive, since they account for a comparatively greater share of income for poorer households and individuals than for higher-income earners.

And in the case of Alberta’s fuel-tax reduction, it’s progressive because the value of the suspended excise tax is a bigger share of poorer-families’ income than for richer families. The “progressive” meaning referenced by the reader has nothing to do with the economics-related meaning, other than the fact that the two are homonyms.

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Transit-tax paradox: University of British Columbia economist Kevin Milligan points out in a Twitter thread an unexpected consequence of soaring fuel prices for TransLink, Greater Vancouver’s transit authority: declining revenue from a special transit tax at the pump. Motorists in the Vancouver area pay a Dedicated Motor Fuel Tax of 18.5 cents a litre. (There are similar, smaller taxes in other areas of the province.) The proceeds of the Vancouver-area tax go to Translink.

But as Prof. Milligan points out, three things will happen as pump prices rise. Some drivers will switch to public transit. Less fuel will be purchased because of rising prices. And that lower volume of sales will decrease the revenue that TransLink gets from its dedicated fuel tax – just as it is faced with an increase in demand for its services.

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

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