Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Environmental Law, July 2008
In the latest of a series of policy announcements aimed at answering the problems related to global warming, federal Liberal leader and leader of the Opposition Stephane Dion unveiled his party's new Green Shift plan on Thursday, June 19, 2008. The essence of the plan is to increase taxation on activities that use carbon – to the tune of C$15.4-billion – while decreasing taxes in other areas in order to stay "revenue neutral". While the final federal plan for dealing with these issues is far from clear, the Green Shift represents a new approach with far-reaching implications for all sectors of Canada. Some key points contained in the plan are summarized below.
Both prior to and since the plan's release there has been much time spent and ink spilt on the issue of whether the plan will be truly revenue neutral. Mr. Dion has attempted to buttress his claim of revenue neutrality by saying that he will instruct the Auditor General to review the impact of the plan on an annual basis. Whatever the outcome of these audits, it is important to note that "revenue neutral" means revenue neutral from a governmental, not an individual, perspective. As the point of the plan is to give individual and corporate Canadians an incentive to move to less carbon-intensive activities, if the plan were revenue neutral to all individuals it would be unable to meet its goals. The plan is intended to, and would clearly increase the tax burden on those who require high levels of carbon usage, while reducing the tax burden on those who do not.
Under the plan, a carbon tax would be applied at the wholesale level to the full range of fossil fuels including coal, propane, natural gas, oil and diesel – but not gasoline – based on their level of carbon emissions. Not surprisingly, given its potential impact, the plan is to be phased in over a four-year time period. The new carbon tax would begin immediately at C$10 per tonne of greenhouse gas emissions and would increase by an additional C$10 per tonne annually for four years to a total of C$40 per tonne.
The primary impact of the plan for individual Canadians would be an increase in home heating costs, estimated by the Liberals to be approximately C$250 per household by the fourth year of the plan. For businesses and other organizations, the primary impacts would be felt through increased heating costs as well as increasing diesel prices and higher costs for industrial processes that require fossil fuels.
While it was assumed by many that the plan would impose higher gasoline costs on an already strained Canadian public, this is not the case as the Liberals have deemed the existing 10-cents-a-litre gas excise tax to be a carbon tax and claim that no further increase in taxes is necessary. For similar reasons, there would be no increase in tax on diesel or jet fuel for the first year of the plan, given their already-existing (albeit lower) taxes.
There is no similar relief in the plan for the equally strained Canadian manufacturing sector. The Liberals have said that the 700 largest greenhouse gas emitters in the country – mostly heavy industry and power plants – would account for a significant majority of the carbon tax revenue. The impact of the new tax in this area of the economy would be dealt with by reductions in corporate taxes and by encouraging the development of green technologies with accelerated capital cost allowance rates. The plan would also make the existing Science, Research & Experimental Development Tax credit 25% refundable to help encourage innovation.
The proposed tax reductions in the Liberal Green Shift plan include:
- C$11-billion in cuts to personal income taxes and
increased incentives for lower-income families
- C$3.8-billion in corporate tax reductions
- a new child-tax benefit of C$350/year on top of all
existing child benefits
- a C$850 increase in the employment credit to a C$1,850
refundable employment credit, and
- an enriched Working Income Tax Benefit
In addition to the general reductions listed above, there are specific provisions intended to offset the unavoidable higher energy costs in rural and northern communities. Rural Canadians would be given an annual Green Rural Credit of C$150, regardless of whether they pay taxes, and the Northern Residents Deduction would be increased immediately by C$1,000 to C$7,000.
Finally, the Liberal Green Shift plan would set aside C$1-billion over four years to help offset the costs of carbon taxes on groups such as not-for profit organizations and charities.
Not surprisingly, the governing Conservative Party, led by Stephen Harper, has been quick to criticize the Liberal plan and defend its own greenhouse gas reduction proposal, which has yet to be finalized (see our April 2007 Blakes Bulletin on Environmental Law: Canada's Action Plan to Reduce Greenhouse Gases and Air Pollution. Most bets are that Canada will face a fall election and it is likely that the two contrasting proposals to address climate change will be a major election issue.
Blakes Environmental and Energy Groups will continue to monitor developments in this area.
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