Stephane Dion's carbon tax is supposed to be revenue neutral.  I know we all know that doesn't mean all Canadians, or even most Canadians, will come out ahead.

Heck, with the inflationary effect of a global energy tax, it is likely we'll all be hurting.

But when I look at the diesel portion of the tax more closely, I realize that the carbon tax is in two parts.  Does revenue neutrality mean both parts are given back to Canadians?  Or will a Liberal government keep a big chunk of the diesel carbon tax for itself?

If that money doesn't come back to me, then how is this revenue neutral?

Which part of the carbon tax is really the carbon tax, and which is general revenue?

According to Liberal Party leader Stephane Dion, all of the carbon tax is going to be returned to Canadians.

He says it's so simple, but I have another one of those nagging questions that I don't see explained anywhere.

The Liberal plan is quite clear.  By Year 4, fuel sources that emit carbon dioxide will be taxed at $40 per tonne of emission.

The carbon tax includes diesel:

A carbon tax will apply at the wholesale level, across the country, to the full range of fossil fuels including coal, propane, natural gas, oil and diesel – based on their level of carbon emissions.

The price will begin immediately at $10 per tonne of greenhouse gas emissions and steadily rise by an additional $10 per tonne each year, reaching $40 per tonne within four years. Further into the future the price on carbon will continue its gradual rise to reflect the true social costs of pollution.

In the fourth year, there will be total revenue of just over $15 billion within the Green Shift, all of which will be returned to Canadians in new tax cuts.

Now there is an exception for diesel, in that in the first year, diesel fuel sold wholesale won't be taxed.  In Year 4, the diesel tax will be $0.07 per liter.

I know, you're scratching your head.  Bear with me.

In 2002, transit systems across Canada consumed 678,000,000 liters of diesel fuel, or 178,992,000 gallons.

Each gallon of diesel is responsible for 22.4 pounds of carbon dioxide.

That means transit systems in 2002 emitted 1,818,661 metric tons of carbon dioxide.

Now according to the basic formula of applying a tax of $10 per tonne of carbon dioxide, transit systems will be hit with the following increases:

• Year 1: $18,186,000
• Year 2: $36,373,000
• Year 3: $54,560,000
• Year 4: $72,746,000

But that's not how the carbon tax is going to be applied per diesel.  It will be seven cents a liter in Year 4.  Starting at zero tax in Year 1 and interpolating, you get this:

• Year 1: $0.00
• Year 2: $15,820,000
• Year 3: $31,640,000
• Year 4: $47,460,000

You'll notice that the amount of tax collected is much less than the promised $40 per tonne in Year 4.

Something is wrong.  A tax rate of seven cents a liter is not equivalent to $40 per tonne.

The correction is that the Liberals are not including the four cent a liter excise tax that currently exists on diesel fuel.  The existence of the excise tax is the justification for starting the carbon tax on diesel at zero and ramping it up to seven cents. If you add that to the carbon tax for diesel, you get these numbers:

• Year 1: $27,120,000
• Year 2: $42,940,000
• Year 3: $58,760,000
• Year 4: $74,580,000

Now the per-liter tax agrees closely with the per-tonne formula that forms the basis of the carbon tax.  In Year 4 the Liberals would be taxing public transit systems nearly $75,000,000 (actually, it is likely to be significantly more, since I'm using 2002 figures).

So I've shown the Liberals are right in their math.  What was the point in that?

There is a point.  Here's the tricky bit. 

The promise by the Liberals is that we're supposed to get the carbon tax back.  Fine. 

The carbon tax is supposed to be $10 per tonne in Year 1, climbing each year to $40 per tonne in Year 4. Fine.

The carbon tax that is actually applied corresponds to this formula only if I add the excise tax of four cents per liter to the per liter carbon tax in each year.  Essentially, the excise tax has been converted into the carbon tax.

Oh.

So if I am supposed to get my $40 per tonne back from the tax collected on diesel fuel, a Liberal government would have to give me the seven cents a liter carbon tax back, as well as the four cent a liter excise tax.

If they don't, I'm not getting my $40 per tonne back.

So that means the revenue the government collects from the diesel excise tax will have to be diverted and fed into the tax cuts that are part of the carbon tax plan, or else I'm not getting my promised carbon tax refund.

I was just doing public transit here.  This diesel fuel formula of no tax in Year 1 and seven cents a liter in Year 4 applies to diesel used by truckers, by ships and fishing fleets, and also to aviation fuel.

The excise tax of four cents a liter collected on these fuels ought to be counted as part of the carbon tax, and so has to be returned to Canadians.

Doesn't it?

Or are we supposed to get the $40 per tonne back only if it's "new tax"?  If a portion of the $40 per tonne is an existing tax, then we don't get it back.  Maybe there are more ways hidden in the carbon tax plan to justify returning much less than $40 per tonne to Canadians.

Is that how it works?

Does it matter?  Estimate vary, but Canadians consume about 30 billion liters of diesel fuel each year.

At 30 billion liters, the excise tax of four cents a liter pulls in $1.2 billion in revenue.  If the Liberals are counting this as part of the carbon tax, as they appear to be doing, then that $1.2 billion has to come back to me.  The Liberals will have to find other sources of money to replace that $1.2 billion.

You know, just to be revenue neutral.

If it's not being counted this way, then Stephane Dion ought to explain it a lot more clearly.

We won't get the excise tax money back: We won't get that money back for the same excuse used to exempt gasoline from the carbon tax.  As the Liberals say, it already has a tax equivalent to $42 per tonne of emission.  If it didn't, then the Liberals could have taxed it, then made a larger tax cut.  But since the tax was already there, the Liberals didn't have to add a new carbon tax.  And so while we get the $40 per tonne tax back that we'll be paying on propane (how much of that do you use a year?) the $40+ per tonne we pay on gasoline stays with the government.  By that logic, the excise tax, though it rounds out the numbers to bring the Liberals to $40 per tonne, is not likely to come back to us.

Posted by: Steve Janke at 01:13 PM | Comments (1) | Add Comment
Post contains 1237 words, total size 8 kb.