By Ben Eisen
and Kenneth P. Green
The Fraser Institute
Last autumn, Alberta Premier Rachel Notley claimed that her government’s proposed carbon tax plan would be revenue neutral. This claim was widely discredited by economists who noted that the term “revenue neutral” means that every dollar collected by a new tax must be returned to the private economy in the form of tax cuts or tax rebates. If any revenue from a new tax is used to fund new government expenditures – as the government made clear would be the case – the tax can’t be called revenue neutral.
During the ensuing months the government changed its rhetoric from misleading to absurd, backing away from the words “revenue neutral” to describe its carbon tax plan. Instead, the government has embraced a less common term, stating that the notion of “100 per cent revenue recycling” is a key principle of their approach.
But what does “revenue recycling” mean?
In short, what the government means is that all of the revenue from the carbon tax will be “re-invested” in Alberta, either by directly returning money to selected taxpayers through rebates or in the form of new government spending. In other words, so long as the government spends all of the money that comes in, the government will comply with its promise to recycle all the revenue.
The implications of this rhetorical shift should give us pause. Consider the fact that nearly any conceivable tax increase of any size would meet this definition if the money is used to fund any priority the government deems an “investment” in Albertans.
For example, the creation of a new sales tax could be cited as an example of “revenue recycling” pretty much no matter what the money were used for. If the money were spent on social welfare programs, transit, bike paths, wind-power subsidies or anything else the government wished to fund, the new tax would qualify as an example of revenue recycling. In fact, just about the only way a new tax would fail this test would be if the money were used to reduce the deficit.
It turns out that we don’t need a new term for this type of expenditure-based revenue recycling – we already have a perfectly good term to describe this policy approach: tax and spend. And the Notley government’s recent budget confirmed that there will be plenty of carbon-fuelled taxing and spending in the years ahead.
For example, the government plans to spend $645 million over the next five years on the creation of a new provincial agency called Energy Efficiency Alberta. The new agency will help direct power micro-generation initiatives in the province and try to promote energy efficiency. The budget also calls for $2.2 billion in new spending on “green infrastructure” including public transit. Significant money is also allocated to bioenergy, renewable energy, innovation and technology as well as the cost of actually implementing the plan.
To be sure, some of the money is being returned to consumers and businesses through tax rebates, but it’s clear that billions of dollars will simply be used to fund new government projects with a heavy emphasis on green infrastructure.
The government deserves some credit for backing away from its inaccurate use of the term revenue neutral to describe its carbon tax plan in recent months. However, the new term – revenue recycling – is so broad as to be essentially meaningless, and provides Albertans with little useful information about the government’s approach.
The much more commonly understood term “tax and spend” provides a more informative description of the government’s approach to carbon taxation.
Ben Eisen is associate director of Provincial Prosperity Studies and Kenneth P. Green is senior director of Natural Resource Studies with the Fraser Institute.