In these unprecedented times, Canadians are feeling significant economic pressure. Governments have rightly been focused on how to help people cope. As the carbon tax rises on April 1st (an increase that was scheduled long ago), it’s critical to remember that all the proceeds are rebated back to families and businesses. A family of 4 will receive $448 in Ontario, $486 in Manitoba, $809 in Saskatchewan, and $888 in Alberta.
Most families receive more in rebates than they pay in taxes. This is particularly true for lower-income households. For example, families earning less than $32,000 per year in Ontario (which account for 20% of Ontario households) will earn $115 more in carbon rebates than they pay in carbon taxes. This year the rebate is likely to exceed the carbon tax for even more families than usual because the carbon rebates are based on forecasts of carbon tax revenue from before the economic downturn.
The current economic downturn should be extra motivation for the government to further improve the carbon rebate program with an eye towards affordability for families and businesses. In particular, the government should:
1. Use the proceeds allocated to businesses in fiscal year 2020 ($339M), as well as any money still remaining from 2019, to provide direct relief to small-businesses in the backstop provinces (ON, MB, AB, SK). For example, the government could reduce the small income tax rate in the backstop provinces.
2. Allocate the GST collected from the carbon tax in 2020 ($179M) to top-up direct payments to households to ensure they can afford the costs of the current COVID-19 crisis.
3. Send the carbon rebates to households via direct payment starting next year, rather than issuing a tax credit. The government’s approach to getting money to Canadians during this economic downturn, through the Canadian Emergency Response Benefit, could serve as a model for the carbon rebate as well. Starting in 2021, the government should begin sending rebates directly to Canadians, rather than issuing the money as a tax credit. This will increase Canadians’ awareness of the rebate, and motivate them to reduce their carbon footprint so they can save additional money going forward.
As this crisis subsides – and it will subside – we’ll still need to address the urgent challenge of climate change. We know that a warming planet increases the risks to our economy, health, and way of life. The carbon tax and rebate is the lowest-cost way to address climate change. It gradually shifts Canada’s economy towards cleaner forms of energy while providing Canadians with money to afford that transition. The changes we’re proposing today could help Canadian families and businesses receive more money in the short-term, while helping us move to that more sustainable, healthier future.
For more information, please contact Clean Prosperity.