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Politics Politics Briefing: Why Liberals raise money with carbon tax, then give it back

Good morning,

The numbers are out on the Liberal carbon-pricing plan, one that will see many Canadians pay a little bit more on everyday things, but, the Liberals promise, most people will get back more than they paid. The average household of four in Ontario, the Liberals say, will see their expenses rise about $244 over the course of the year, but will get back about $300 through rebates when they file their income taxes. The rebates are expected to be even larger in Saskatchewan and Manitoba.

So you may ask yourself: what’s the point of a carbon tax if you’re giving most of the money back?

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The policy pitch for carbon-pricing plans is that you make certain activities more expensive to make up for the pollution they cause. The higher price means people do the activity less, which then means you create less pollution.

Brendan Frank, at the nonpartisan Ecofiscal Commission, illustrates this with an example: A commuter drives to work most days, but occasionally takes public transit. You raise the price of gas a little bit (the government estimates about 4 cents a litre to start), and suddenly driving just becomes a little bit more expensive. So the commuter starts taking public transit more often to save money. At tax time, they’re paid back and, by the government’s calculations, should have as much or more money than they started with – but by taking transit more, and driving less, they’ve created less pollution.

The point of the program is to create and slightly escalate that pain at the pump. Giving you the money back afterwards just makes it politically palatable. For the Liberals, it’s in the name of their program: It’s not a tax credit or rebate, it’s a “climate action incentive payment." They are trying to incentivize one action over another. Whether it will work remains to be seen.

This is the daily Politics Briefing newsletter, written by Chris Hannay in Ottawa. It is exclusively available only to our digital subscribers. Have any feedback? Let us know what you think.

TODAY’S HEADLINES

“Canadians expect us to act” against human-rights abuses carried out in Saudi Arabia, Prime Minister Justin Trudeau told reporters yesterday. So far Canada has not committed to suspend or cancel arms sales to the Saudis – as Germany has done – nor has it openly discussed bringing targeted sanctions against Saudi officials, as the United States is reportedly considering. Mr. Trudeau said hampering a massive armoured-vehicle sale to Saudi Arabia – one that was signed under Stephen Harper, but approved for export under Mr. Trudeau – would carry a cancellation fee of as much as $1-billion.

The Bank of Canada is expected to hike its benchmark rate today.

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Parliamentary Budget Officer Yves Giroux says the call by business groups to lower the corporate tax rate is not backed up by data. “Of course, they’re speaking for their own parish when they’re saying that businesses will suffer from the higher tax rates. Everybody would like to have lower taxes apply to themselves,” he told The Globe.

The House of Commons voted nearly unanimously that the government should come up with a plan to “bring to justice” any Canadians caught fighting for the Islamic State or other extremist groups. (Green Party Leader Elizabeth May was the only one of the 281 MPs present to vote no.)

The federal Liberal government launched a program earlier this year to expunge the criminal records of people convicted of same-sex acts when such activity was illegal. So far the government says it has expunged the records of two people, with another five being processed. Advocates say the uptake has been slow so far in part because of an “arduous” application process.

Federal ministers' offices are becoming more expensive.

The Ontario Progressive Conservative government is planning to freeze the minimum wage at $14 an hour. Ontario also says it will cancel the construction of three new university campuses that were set to be built in the Greater Toronto Area.

NDP Leader Jagmeet Singh says the federal government should pay for the basic income pilot that was earlier cancelled by Ontario.

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And former prime minister Paul Martin gave an interview with Report on Business Magazine in which he did not really want to talk about trade. “Let’s get to the Indigenous issue,” the interviewer said, finally. “God, I thought you were never going to,” Mr. Martin replied.

John Ibbitson (The Globe and Mail) on carbon pricing and the next election: “The Liberals have scientists and economists in their corner. The Conservatives and opposing premiers are appealing to a tax-weary and skeptical public. Who will prevail?”

Paul Wells (Maclean’s) on carbon pricing calculations: “There will, of course, be cases where a given driver uses way more than the average amount of gas. One suspects we’ll be hearing from those people, both directly and through the mouths of Conservative MPs.”

Globe editorial board on the carbon pricing rebates: “Above all, it’s politically smart to hand carbon revenues directly to people, rather than to intransigent provincial governments. Doing so helps counter the federal Conservative talking point that the carbon tax is a revenue grab.”

Theresa Tedesco (CBC) on rising household debt: “Let’s dispense with the obvious: the more debt you have, the more vulnerable you are and hence, the more you will be affected by an increase in interest rates. As rates rise, expect debt loads will multiply as the cost to service the debt soars. Conversely, those carrying less debt may be at less risk of financial shock since they have less exposure.”

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