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editorial

A fiscal update from the Parliamentary Budget Officer that has given fresh ammunition to Canada’s growing chorus of opposition to carbon taxes is, in fact, a legitimate critique of the way carbon pricing is being implemented by Ottawa and the provinces.

The PBO, which provides an independent review of federal spending, says the national carbon tax being imposed by Ottawa “will generate a headwind for the Canadian economy over the medium term as the levy rises from $10 per tonne of CO2 equivalent in 2018 to $50 per tonne in 2022.”

The result will be that Canada’s projected GDP in 2022 will be half a per cent lower than it would otherwise have been.

That’s not a huge hit to our economy – instead of growing by $168-billion between now and 2022, it will grow by roughly $158-billion, the PBO projects.

But for those opposed to the federal carbon tax, which will be imposed on provinces that don’t implement their own version this year, this is pure gold. Any claim that the federal scheme will pull the handbrake on the economy, however gently, will always be touted as proof that carbon pricing is a job-killer.

Except that’s not the whole story. The PBO points out that the federal carbon tax will generate significant revenue for Ottawa – revenue that, if used wisely, could limit the tax’s negative impact on the economy.

Ottawa, along with provinces that have instigated carbon-pricing schemes, have consistently promised to turn any revenues from carbon pricing into a benefit for taxpayers, either in the form of a cheque to households, by lowering income and corporate taxes, by investing in new technology or by building critical infrastructure.

The PBO implies that the most efficient way of “recycling” the revenue is through reductions in corporate and income taxes, which is our first choice, too.

But the bottom line is that carbon pricing must not be a cash grab. Carbon taxes are an effective way of getting people to lower their fossil-fuel consumption and reduce emissions. The majority of Canadians support them, or at least tolerate them, according to polls. That could change quickly if the revenues aren’t put to their best use.

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