OPINION

Half-baked nonsense, from both the left and right

Charest’s carbon tax is bad-faith economics, and it will do nothing to cut emissions

ANDREW POTTER July 1 2006
OPINION

Half-baked nonsense, from both the left and right

Charest’s carbon tax is bad-faith economics, and it will do nothing to cut emissions

ANDREW POTTER July 1 2006

Half-baked nonsense, from both the left and right

OPINION

Charest’s carbon tax is bad-faith economics, and it will do nothing to cut emissions

ANDREW POTTER

On June 19, the Fraser Institute confirmed its status as the Adbusters magazine of Canadian think tanks with the announcement of its 30th annual Tax Freedom Day. Every year around this time, the Institute trumpets the date after which Canadians stop working for the government and start working for themselves.

Like Adbusters’ infamous Buy Nothing Day, the Fraser Institute uses half-baked economic notions to advance a one-sided political agenda. In this year’s press release, the Institute claims that the point of Tax Freedom Day is “to provide a simple reference point” for understanding taxation: “It is nearly impossible for an ordinary citizen to have a clear idea of how much tax they really pay. Tax Freedom Day gives Canadians a true picture of their total tax burden.”

As if. The Fraser Institute routinely plays with the inputs to make sure TFD falls as late in the year as possible. They make it look as if the average Canadian has to work almost half the year just to clear his or her tax bill. Given that the wealthiest 10 per cent pay about 45 per cent of all taxes, the real “tax freedom day” comes far too early for the overwhelming majority of the population, given the value of government services they consume.

The real point of Tax Freedom Day is to draw an invidious contrast between private and public spending. The implication is that, after a certain date, the “burden” of public spending ends and the “freedom” of a life of private consumption begins. Yet it isn’t as if anyone suddenly stops consuming public goods after June 19. To see the problem with this line of reasoning, consider an analogous holiday called Mortgage Freedom Day—the day that you stop working for the bank, and start working for yourself. You are seriously missing the essence of the bargain if you ignore

the fact that, while you’re “working” for the bank, you’re living in the bloody house.

Unfortunately, the Fraser Institute doesn’t have a monopoly when it comes to dealing in politicized tax policy. Last week, the Quebec government announced plans to impose a carbon tax on oil and gas companies as part of a legislative package aimed at fighting climate change. Reaction across the political spectrum was positive, since just about everyone accepts that a carbon tax will be the centrepiece of any serious attempt at reducing man-made emissions of greenhouse gases.

Then Premier Jean Charest went and spoiled it by insisting that oil producers would not be allowed to pass the tax on to con-

sumers, saying companies should see it as their contribution to a cleaner environment: “If they don’t see it that way, I’d regret that. I think they’d be totally wrong. They’re going to be on the wrong side of this issue.” Charest was egged on by Stephen Guilbault of Greenpeace, who said, “I think it’s totally indecent for these companies to say we’ll pass on the cost to consumers.”

This is depressing, for a number of reasons. For starters, too many on the left persist in believing there is a fundamental difference between a tax on businesses and a tax on individuals, and that there should be more of the former and less of the latter. This is mostly a myth, since corporations generally pass their taxes on to consumers. Take the GST as an example. Most Canadians think of the GST as a federal sales tax, a charge levied at the cash register and paid by consumers. That is certainly what it feels like.

Yet unless you are self-employed, when was the last time you cut a GST cheque to the government? The GST is a value-added tax that gets passed on from business to business until it reaches the end of the consumption chain, where it is ultimately paid by the final consumer. Sure, the Quebec government could probably force oil companies to “hide” the new provincial hydrocarbon tax in the retail price of gas, but it is hard to see how it could prevent them from similarly passing it on to consumers.

More to the point: Why on earth would anyone want to prevent the tax from being passed on? The idea behind a carbon tax is that it will reduce greenhouse gas emissions. This means that, in the case of gasoline, consumers must either drive less or use more fuel efficient cars. But if the cost is not passed on to them, they will have no incentive to do so. Why does Jean Charest insist that it should be otherwise? Because fuelling resentment over Alberta oil interests is a slam dunk for a Quebec politician, right behind “complain about Ottawa” in the Book of Everyday Tactics.

This sort of cheap politicking will only backfire. The resistance in the oil patch to a carbon tax comes from the suspicion that it is just a disguised National Energy Program—a way for

eastern bastards to get their mitts on petroprofits. Insisting oil producers absorb the tax themselves only feeds that suspicion. In reality, because so much manufacturing sooner or later depends upon oil, higher fuel costs get passed along in the form of increased prices for a large basket of goods, not just for filling up the gas tank. Since the effect this tax will have on the world price of oil will be negligible, the carbon tax won’t affect the oil industry in the slightest. But you won’t hear that from the green lobby, since it is too busy pandering to its anti-capitalist constituency.

Nonsense from the left, nonsense from the right. In Canada, bad-faith economics is a bipartisan affair. Everyone sees politics as a zero-sum game in which there is no such thing as good policy, only winners and losers. Except there are real losers. They are called Canadians, considered either as private citizens or members of a commonwealth. M