Choosing Wisely: British Columbia
B.C.’s carbon tax has been in place since 2008. Initially set at a low price of $10 per tonne, it has since risen to $30. The tax raised $1.21 billion in fiscal year 2013/14. The tax is revenue-neutral, with revenues used to lower corporate and personal income taxes. Yet there have been recent calls from business to increase the tax after 2017, and the additional revenue from any possible future increases could be recycled a number of different ways. Indeed, the province’s independent Climate Leadership Team recommended an increase in the tax of $10 per year with a portfolio of recycling approaches. The Ecofiscal Commission’s recent report, Choose Wisely, weighs the pros and cons of the various approaches to revenue recycling and can provide some guidance on what might make the most sense for B.C.
Which revenue recycling options are a good fit for B.C.?
B.C.’s specific circumstances make some revenue recycling options more attractive than others. The report provides an assessment of the relative merits of different options, but it is not meant to be prescriptive – priorities should be set by the citizens and government of B.C. However, having a clear sense of the trade-offs that different recycling options present can help the province to craft policy.
Transfers to households
Vulnerable households shouldn’t be disproportionately burdened by an increased carbon tax. The funds required to compensate vulnerable households, however, would amount to only a small fraction of the additional revenue raised from a higher tax. So this option would need to be only a small part of the story.
Income tax cuts
B.C. has already lowered income taxes by recycling revenues from its carbon tax. Moreover, its personal and corporate income tax rates are relatively low compared to other provinces, so further reductions may be a lower priority. If tax reductions are a priority, lowering the provincial sales tax, as recommended by the Climate Leadership team, could also help increase public support.
B.C.’s highly ambitious GHG target for 2020 and beyond will be difficult to achieve through carbon pricing alone. Investments in emission-reduction technology, particularly for the natural gas and LNG sectors, could be a valuable complement to B.C.’s carbon tax and help to ensure that the province’s emission targets are achieved.
The infrastructure deficit in B.C. is not as severe as is in many other provinces. Still, the province has faced difficulties in funding needed construction and repairs, and recycling revenues toward infrastructure could help to close these funding gaps.
Reduction of public debt
With a debt and fiscal position that many other provinces would envy, recycling revenues to reduce public debt is likely a lower priority for B.C.
Transitional support to industry
B.C. is not as exposed to competitiveness pressures from carbon pricing as other provinces are. However, sectors like natural gas, refining, cement and lime, and aluminum will face some pressure. Such industries could benefit from revenue recycling, but any support should be both targeted and transitional.
What way(s) should B.C. go?
The various revenue recycling options discussed in the report can help B.C. to improve both the fairness and economic and environmental impact of its carbon tax policy. But the government cannot pursue them all. It will need to choose.
Event: Recycling Carbon Tax Revenues in British Columbia
Our expert panel discuss the the trade-offs of different revenue recycling options, including how to address household fairness and business competitiveness in B.C.
Live today at noon PDT.
Watch the Live Panel