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Alberta's carbon tax is a good idea, poorly executed

Alberta Premier Rachel Notley’s personal-approval rating is 31 per cent, with the carbon tax identified as the leading cause of her sinking popularity.

Codie McLachlan/The Canadian Press

As Albertans cope with Week 2 of the Notley Carbon Tax, there's an almost visible haze of anger and disillusionment floating over the province. But despite the public outcry, this is not a bad or onerous tax. But it is an extra tax at a bad time – and that is where the province has created both a political and a policy problem for itself.

Polls throughout the fall showed about two-thirds of Albertans opposed the carbon tax and the reality of the tax's arrival has done little to calm that discontent. Premier Rachel Notley's personal-approval rating is a dreadful 31 per cent, with the carbon tax identified as the leading cause of her sinking popularity.

Social media is bursting at the seams with anti-Notley, anti-carbon-tax memes. It's a slap in the face to struggling Albertans, the Twitticenti cry. It's economic suicide, they warn. (And many much more nasty comments about Ms. Notley, her motives, competence and intellect, that do not bear repeating.)

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Read more: Alberta's carbon tax defies expectations in first week

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Let's remember this is for a levy that increases gasoline prices by all of 4.5 cents a litre. The current average pump price in Calgary, at $1.08 a litre (regular unleaded), is roughly where it was in the middle of last year, and more or less in line with the five-year average, according to data compiled by Kent Group Ltd. This is not the crippling price shock some would have you believe.

It's not as if Albertans have never paid taxes on fuel before. Indeed, before the carbon tax came into effect, nearly one-quarter of the average pump price in Calgary, or 23 cents on each litre, represented pre-existing gasoline taxes. More than half of that (13 cents a litre) was a provincial fuel tax (which was the lowest among Canadian provinces, I might add). Let's not pretend this is the first provincial government to tax Albertans at the pump.

And this is a tax in a province that collects less revenue per person than any province in Canada, and has the lowest tax hit, relative to income, in the country. It famously charges no sales tax; provincial sales taxes elsewhere range from 5 per cent (Saskatchewan) to 10 per cent (across the Atlantic provinces).

University of Calgary economist Jack Mintz has calculated that once Alberta's carbon tax rises to the planned $30-a-tonne level in 2018 (it's set at $20 a tonne of carbon dioxide for 2017), the revenue from the tax will be roughly equivalent to what a 3-per-cent provincial sales tax would reap. It's not the greatest comparison, since the carbon tax is most certainly not some sort of back-door sales tax Albertans have long opposed (it only applies directly to carbon-based fuels), but at least that gives an idea of the scale we're talking about. As far as provincial consumer taxes go, Albertans are still getting off relatively easy.

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A carbon tax makes a lot more sense than a sales tax anyway. Why not tax carbon emissions – something that any scientifically based analysis would agree is a negative environmental consequence of economic activity – rather than consumption – generally considered a positive consequence of economic activity?

As for that carbon-tax-paved road to economic ruin? Let's remember that a neighbour and sometimes economic competitor – B.C. – has had a $30-a-tonne carbon tax for nearly five years. Its economy has been the model of consistent strength throughout that period, leading the country in growth the past two years.

But there's a big difference. B.C.'s tax is, more or less, revenue-neutral – by law, it must offset its revenue from the carbon levy with equivalent tax cuts elsewhere. Over all, British Columbians don't pay any more taxes than they would have otherwise. And their tax breaks elsewhere encourage economic activity, allowing the province's economy to grow at a healthy clip even as its fossil-fuel consumption shrinks.

Ms. Notley, by contrast, has promised to pour the carbon revenue into government investment – in renewable energy, green infrastructure and energy efficiency. All worthy goals, and ones that may well pay off for the provincial economy in the long run. But there's no getting around the fact those are government spending programs, funded by an additional tax.

And an additional tax, no less, at a time when the provincial economy is finally seeing glimmers of light after two dark years of recession fuelled by the collapse of oil prices. Only recently have the economic data suggested Alberta's slump has bottomed; the Bank of Canada's latest quarterly Business Outlook Survey, released this week, indicated that for the first time since the oil collapse of late 2014, the province's huge energy sector is poised for an upturn in business investment in 2017. The Notley government should be nurturing this fragile economic rebirth, not placing new obstacles in its path, even if they are only modest ones.

If the government were to offset the carbon tax with equivalent income and corporate tax cuts, it could promote reduction in carbon intensity while at the same time providing growth and spending incentives for Alberta's households and businesses as they emerge from the deep slowdown. It could thus help unlock pent-up demand from two years on the economic sidelines and accelerate growth, rather than simply slap a new tax on it.

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All of this, of course, could have been part of the government's original plan; in terms of political optics, that ship sailed long ago. But to get Alberta's economy working again, it's not too late to correct the policy misstep by announcing corporate- and income-tax relief in the next budget. It's an opportunity to regear the tax structure for growth.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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