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Carbon tax: Ottawa must compensate households by cutting taxes

Montreal, May 18, 2017 - With Ottawa unveiling its new carbon tax, the MEI points out that this measure will increase the tax burden on Canadian households, and it is calling on the government to offset this effect by lowering taxes.

"To ensure that Canadians are not penalized financially, the government must make a commitment that carbon tax revenues will be fully offset by reductions in personal taxes. Revenue neutrality is the best way to mitigate the impact on the economy," says Germain Belzile, Senior Research Associate at the MEI.

The Trudeau government wants to set the greenhouse gas (GHG) tax at $10 per tonne by 2018 and gradually increase it to $50 by 2022. The provinces will have to comply by choosing a tax or a cap-and-trade system enabling companies to buy credits from other companies that have succeeded in reducing their emissions.

Ottawa says it wants to ensure that all carbon tax revenues are returned to the provinces where they were collected. However, this is not sufficient to reduce the economic impact on taxpayers, Mr. Belzile says. "Only some of the carbon tax revenues will go directly into citizens' pockets, with the rest going into government coffers. It can be assumed that they will then subsidize various 'green' projects, but this does not respect the principle of tax neutrality. It is actually an additional tax on citizens," he adds.

The MEI notes that a tax of $50 per tonne of CO2 equivalent emissions would add 11.6 cents per litre of gasoline. Canadians already pay between 20 cents and 30 cents per litre in tax, depending on the province. This already acts as a carbon tax on transportation.

"The poorest Canadian households, as well as the middle class, are particularly affected by this type of measure," Mr. Belzile emphasizes. "Yet the Prime Minister has repeatedly said that he is concerned about the lot of the middle class. He has an opportunity to demonstrate this by committing himself to ensuring that carbon tax revenues are returned in full to citizens' pockets."

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Karl-Javid Lalonde-Dhanji, Analyst and Coordinator, Current Affairs MEI / Tel.: 514-824-8948 Email: klalonde@iedm.org


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