Ontario Premier Doug Ford faces two thorny taxation issues as his Progressive Conservative government finishes the first year of its second mandate.
The first is an unfulfilled promise to cut corporate tax rates that Mr. Ford made during the 2018 campaign. The second is the question of what to do with the revenue from the industrial carbon tax that the province began administering this month, taking over from an Ottawa-run version.
Luckily for Mr. Ford, those two problems can solve each other – and could allow his government to push carbon policy in a more free-market direction, away from the more-tax, more-spending track that the federal Liberals have been on.
First, that tax-cut promise. On the campaign trail in 2018, Mr. Ford said he would reduce the general corporate tax rate to 10.5 per cent from the existing 11.5 per cent. That hasn’t happened, although the province has tinkered with the tax system to provide some benefits to small business.
Ontario has yet to decide how to spend the proceeds from its industrial carbon tax, officially dubbed the emissions performance standards program. Large emitters that fail to meet goals to reduce their carbon footprint will have to pay a per-tonne charge under the program, with the cost escalating each year. By 2030, Ontario projects the tax will bring in $446-million (more on a nominal basis, once inflation is taken into account).
While impressive, that sum wouldn’t pay the entire bill for fulfilling the pledge to cut corporate taxes, given that the province projects it will collect $22.7-billion this year; a single tax point is roughly worth $2-billion.
But the revenue from the industrial carbon tax would make for a handsome down payment. Much more importantly, such a move would get Ontario out of the business of anointing winners of green subsidies and instead shift the industrial carbon tax to a truly revenue-neutral footing.
The federal Liberals incessantly proclaim that the federal fuel charge is revenue neutral, but that claim is not true. Yes, 90 per cent of proceeds are returned to households in the form of quarterly payments. And a slice of the remaining 10 per cent is being returned to the agriculture sector as rebates tied to farm income.
But the remainder is to be spent on subsidies for emissions-reducing projects. Sure, it’s designated spending, but it is spending nonetheless. Over time, that subsidy fund will grow substantially, topping $2.3-billion by fiscal 2031, according to projections from the Parliamentary Budget Officer.
Of course, the actual costs will be higher, given the need for a bureaucratic infrastructure to administer the ever-growing pool of grant money – not to mention the issuing of a concomitant stream of green-bragging press releases.
Then there is the broader issue of the federal government deciding which emissions-reducing projects meet its favour, rather than companies deciding on their own how to best respond to the financial pressures of carbon pricing.
Ottawa has, unfortunately, lots of company on this command-and-control path. British Columbia set a laudable standard of a revenue-neutral carbon tax 14 years ago, when it reduced personal and income taxes as its carbon charges increased. That measure, introduced by Gordon Campbell’s right-of-centre government, put into practice the conservative notion of a carbon transition driven by market forces.
But the province has subsequently veered away from that approach, focusing instead on targeted credits and subsidies. (More happily, New Brunswick has started to reduce taxes in conjunction with increases in its consumer fuel charge, a limited step away from the subsidy model.)
The Ford government could break with Ottawa’s government-centric approach, and instead return carbon pricing to its right-of-centre roots by shifting the tax burden toward consumption (of fossil fuels) and away from income.
Small businesses should be the focus of any tax reductions. That sector has been forced to bear the full brunt of rising fuel charges, without the benefit of the offset payments that consumers receive or the flexibility of the emissions permits for large industrial operations.
Tax breaks would have one additional virtue over targeted subsidies: the benefits would not be limited to environmental laggards, or at least to those with the time to navigate the complexities of a subsidy application process.
There is a better path for carbon policy in Canada, one easily reconciled with conservative principles. Ontario can clear that path.