Baloney Meter: Liberal claim 8 in 10 better off with carbon tax partly accurate

OTTAWA — “Climate change is real and it requires real solutions. It’s a fact that pricing pollution is the most cost-effective way to cut pollution. Our plan will also leave 8 out of 10 families better off, with an Ontario family of four receiving a #ClimateActionIncentive rebate of $307.”

— Environment Minister Catherine McKenna on Twitter, April 1, 2019

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Prime Minister Justin Trudeau campaigned in 2015 on a promise to introduce a “price on carbon.” Imposing one as part of a national plan to cut greenhouse-gas emissions was the key task Trudeau gave McKenna when she became environment minister.

The carbon tax kicked in on April 1, starting at $20 per tonne, in Ontario, Manitoba, Saskatchewan and New Brunswick, the four provinces Ottawa determined did not have a carbon pricing system that met federal standards.

At the same time, when residents of those provinces file their 2018 income taxes, they will get a Climate Action Incentive payment to offset the cost of the carbon tax.

Conservative Leader Andrew Scheer accuses the government of making every part of life cost more. The government argues that eight in 10 households in the affected provinces will get a rebate that amounts to more money than they end up paying in carbon tax.

This statement earns a rating of “Some baloney”: the statement is partly accurate but important details are missing.

The Facts

Individual consumers and businesses that emit less than 50,000 tonnes of greenhouse gases a year will pay the carbon price on any fossil fuel they buy to run vehicles and heat and power their homes and workplaces.

Some of the cost could also be embedded in the prices of many other goods and services, such as airline tickets, groceries, clothing and insurance, if businesses pass on their carbon costs to their customers. Twenty-one fuels and combustible materials are subject to a carbon price.

At $20 a tonne, the direct cost of the tax, for fuels directly bought by consumers, will be $1.86 on a 40-litre tank of gasoline, $90 more on an average yearly natural-gas heating bill, and $105 more on an average annual oil heating bill.

Estimating the indirect costs of the carbon price for food, clothing and other goods and services is more complicated because it depends on what you buy and what businesses do to change their prices.

The government expects to raise about $2.36 billion in 2019-20 from the carbon tax, and 90 per cent of that is to be returned to individuals via the rebates. If revenues are higher than expected, rebates will be increased, the government says.

The average household rebate in 2019 is $248 in New Brunswick, $300 in Ontario, $336 in Manitoba and $598 in Saskatchewan.

The government claims the average cost of the carbon tax per household this year will be $202 in New Brunswick, $244 in Ontario, $232 in Manitoba and $403 in Saskatchewan. About three-quarters of those estimates are attributable to direct costs and the rest to indirect costs.

The estimated costs and the guaranteed rebates vary because average consumption of the taxed fuels is different in each province.

Finance Canada did not provide The Canadian Press with the full analysis that led the government to those numbers. In a statement, however, an official from the department said those estimates were made using Statistics Canada’s social policy simulation database, which can estimate the effects of various tax changes based on current consumption patterns. The analysis also used Finance Canada estimates of the impact of federal carbon pricing on prices of goods and services, and assumes that businesses pass “all of their costs to consumers.”

What the experts say

Finance Canada officials says that if both direct and indirect costs are included, the number of households that will get a bigger rebate than their carbon tax expenses is seven out of 10. It is eight of 10, McKenna’s claim, if only direct costs are considered.

The assumption that businesses will pass on all their carbon costs to consumers is challenged by business groups. Dan Kelly, president of the Canadian Federation of Independent Business, said a survey of its members this winter found 80 per cent of business owners believe they will likely be able to pass on less than one-fourth of their carbon-tax costs. It means the indirect cost to consumers could be less than the government expects — which means even more families could get rebates that exceed their costs, though businesses would make up the difference.

Jennifer Winter and Trevor Tombe, professors in the School of Public Policy at the University of Calgary, analyzed carbon-tax rebates and costs for Alberta in March. Alberta has its own carbon tax, already at $30 a tonne, with its own set of rebates, but they looked at the impact of both federal and provincial systems.

Their analysis, which used the same Statistics Canada database as Finance Canada, concluded that 80 per cent of Alberta households would have more money from the rebate than they would pay in federal carbon tax. Tombe said he was a bit surprised by the finding.

“I was just personally thinking that was a little bit high,” he said. “It just didn’t seem plausible, but I’m glad I was mistaken.”

While it’s harder to calculate the indirect costs, the Statistics Canada tool is a respected model that can do that, Tombe said. He said looking at the $30-a-tonne carbon price in Alberta, the database suggested it would increase the cost of clothing and footwear by about 0.15 per cent and the cost of food 0.28 per cent.

He said economic fundamentals — poorer families use less energy than richer ones, but every household with the same number of people will get the same rebates — suggest most families will be better off with the rebates.

“The qualitative claim there that a majority of households will get more back — that is true, that is undoubtedly true,” he said.

But the specific claim that 80 per cent of families will be better off requires calculations with data the government has not made public and might not yet possess, he noted.

Also, the fact that the government admits that the 80-per-cent claim is only accurate if the calculation leaves out the indirect costs of more expensive goods undermines the full accuracy of McKenna’s statement.

The verdict

For the reasons above, Catherine McKenna’s claim that 80 per cent of households now subject to a federal carbon tax that are receiving the government’s associated rebates will be better off earns a rating of “some baloney.”

Methodology

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

Sources

https://www.policyschool.ca/wp-content/uploads/2019/03/Carbon-Tax-Costs-SPP-EE-Trends-MARCH-2019-final.pdf

https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution/technical-briefing.html

https://www.statcan.gc.ca/eng/microsimulation/spsdm/spsdm

Mia Rabson, The Canadian Press