Saturday, July 12, 2008

The Green Shift: Someone Talking Sense. Sort of.

After weeks of unsubstantiated accusations that 'The Green Shift' (or whatever we're going to be calling it) is nothing more than a back-door way of funding 'Liberal social programs', someone has actually gone to the trouble of trying to substantiate this position. Namely, Adam Radwanski of the G&M.

Is it really revenue neutral?

Short answer: Only if you accept the broadest possible definition of what qualifies as a tax cut. But then, that's pretty much the definition we've been accepting for years.

Straightforward tax cuts, in the form of reductions to business and income taxes, add up to roughly $9-billion in Year 4 of the Liberal plan. The rest of the more than $15-billion the party expects its carbon tax to generate would go mostly toward spending initiatives dressed up as tax benefits and credits - a $465-million supplement for low-income workers, a $150 supplement for every rural resident (totalling $749-million) to help pay their bills, a $600-million capital cost allowance for green technologies, another $400-million for R&D, an $800-million boost to the guaranteed income supplement for low-income seniors. Biggest of all is a nearly $3-billion child tax benefit - quite possibly a worthwhile expenditure, as are many of the others, but not exactly a tax cut in the traditional sense of the word.


No, I suppose not. Quite right. I still wouldn't call it a 'social program' either, but at least someone is looking at this with a level head for a change.

My argument would be as follows:

Tax cuts benefit those who make enough money to pay taxes. The richer you are, the more you benefit. Tax credits (specifically refundable credits) benefit those who DON'T make very much money. The poor. The self-employed. Those in the film and television industry.

And since the 'Green Shift Plan' (can we call it that?) incorporates both tax cuts AND tax credits, and will therefore return all of the carbon tax to rich and poor, individuals and businesses, in proportions that approximate their ability to absorb the additional cost, I'm not sure how that isn't "revenue neutral".

But kudos to Radwanski for making a well thought-out critique of the 'Liberal Green Shift' (can we call it that?). Again, this is what we call civilized debate.

5 comments:

  1. Well argued, Jennifer. You could call them tax "measures" that even out. That's helpful. Even if it doesn't ease my own giant skepticism over the revenue neutrality promise (and the whole carbon tax approach).

    With a carbon tax, I don't think many of us believe $40/ton will put much of a dent in emissions. Certainly the ENGOs don't. And the G-Shift's own numbers presume as much -- it projects tax revenues based on ZERO emission reductions, even in the fourth and final year. The whole revenue neutrality demonstration is based on that.

    So what happens in year 5 and beyond? Do we trust future governments to keep hiking the tax until we see reductions? If so, do we also trust Ottawa to continually offer NEW "tax measures" to preserve revenue neutrality?

    For me, it's all too slow and asks for too much trust. That's the biggest reason why I wish we'd all stayed united behind a carbon market. With tight enough caps (i.e. learning from Europe), emissions will come down -- carbon prices will float up even if we don't trust future governments to associate themselves with raising taxes.

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  2. All 'revenue neutrality' really means is that everything that comes in goes out again in one form or another - and really, you can say that about any tax unless the government is running a huge surplus.

    I'm actually pretty satisfied with the distribution of the tax cuts and credits, although I would like to see more for farmers and northerners. I would also like to see last year's Liberal plan - the 'Carbon Budget', which was essentially a cap-and-trade system - brought in in addition to the Green Shift. I was there when Dion unveiled it in Milton, and it's a great plan because it takes revenues from large emitters and puts it into a dedicated fund that they can tap to invest in their own emission reductions.

    The downside is, it doesn't address smaller emitters, transportation, etc. But at least the Libs are talking about bringing in both, eventually.

    As for the actual emission reductions that would result from a carbon tax - well, look at Norway. Or Sweden. Or any of the other countries that have brought in a carbon tax. In those cases, the tax is higher ($60/tonne in most cases), and Sweden has seen their emissions reduced by 9% - along with better economic growth than ours.

    Will Dion's carbon tax be enough by itself? Maybe not. Could we sell the Canadian public on anything more? I sincerely doubt it, at least not yet. But imagine - a year ago, how many people even knew the difference between a carbon tax and cap-and-trade?

    People are informed and engaged. We just need a government that will listen and encourage everyone to come up with creative solutions. Hell, one that would actually acknowledge that there's a problem would be a start.

    (and BTW, cap-and-trade systems are generally acknowledged to be slower and more complicated to implement than carbon taxes.)

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  3. "and BTW, cap-and-trade systems are generally acknowledged to be slower and more complicated to implement than carbon taxes.)"

    With respect, Jennifer, that's not a "BTW" -- that's a floating Lib talking point. Both systems have their complexities, bureaucracies, and requirements for followup. A carbon tax provides more cost certainty for industry -- fixing a carbon price, letting emissions float, and repeatedly jacking the price. A carbon market provides more environmental certainty -- fixing emissions caps, letting the price float, and forcing industry to adapt.

    The world is moving away from carbon taxes and toward carbon markets. Everyone loves to appeal to the "European experience" to justify their position. But who can deny that the EU's primary means of reducing emissions is now a carbon market?

    Will Dion's carbon tax be enough by itself? Maybe not. Could we sell the Canadian public on anything more? I sincerely doubt it, at least not yet.

    BINGO. And I'm saying a carbon market is what we should all be getting behind -- not a carbon tax that isn't even designed to reduce emissions within its four-year timeline. Three months ago, all opposition parties were united on a carbon market as burning priority #1 -- a common front against Harper. Until Dion suddenly went solo with the carbon tax approach, even though it's less effective, to try to shake up the "weak leader" narrative.

    You said: "We just need a government that will listen and encourage everyone to come up with creative solutions."

    Cheers to that.

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  4. I wasn't terribly impressed with Radwanski, actually. Any consumption tax is going to be heavily regressive, since poor people both spend more of their income and are least equipped to be able to make changes to their consumption patterns.

    Dion--quite admirably--appears to have realized that, and has worked to ensure that the poor aren't disproportionately hurt.

    If Adam has such a problem with that sort of thing, then why doesn't he advocate getting rid of that GST rebate poor Canadians get as well?

    As for that stuff about carbon markets, well, it's been said over and over again that cap-and-trade is compatible with the tax. Why not do both, with carbon taxes for consumers and cap-and-trade for producers? After all, cap-and-trade isn't going to do a damned thing to get people on to the bus.

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  5. "As for that stuff about carbon markets, well, it's been said over and over again that cap-and-trade is compatible with the tax. Why not do both, with carbon taxes for consumers and cap-and-trade for producers?"

    As Jennifer also suggested, we can't reasonably do more than one with the speed we need. We should start by getting behind one and pushing hard. Until May, all three opposition parties were behind cap-and-trade.

    I'm arguing that this was the right choice. Only cap-and-trade can assure the results we need fast enough -- because it starts from results and makes the carbon price float to meet them. Again, even Dion projects zero emission reductions through his carbon tax's initial four-year span.

    On top of that argument, I'm laying down a hypothesis that you can choose to hear or ignore. Namely: Liberal tacticians convinced Dion to break consensus and go solo with the weaker, harder-to-sell approach precisely to provoke conflict and distract from "Weak Leader" -- not a grand gesture, but a fracturing political calculation that makes actual progress on reductions less likely.

    "After all, cap-and-trade isn't going to do a damned thing to get people on to the bus."

    Yet it can -- precisely, it can. Layton's plan reinvests all carbon-auction proceeds into "green solutions" like better public transit. Dion's raises the price of diesel, pumping up transit authorities' operating costs -- upward pressure on fares and downward pressure on service levels -- without reinvesting anything in transit.

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