Green Party of Canada - Carbon Tax Plan

Is this plan supposed to be a joke? Assumptions in the plan are either from an ignorance of how the Canadian tax system works or an attempt to mislead. A potentially strong, visionary plan ruined.

Basics of the Green Carbon Tax Plan

As someone who has supported the Green Party in the past (and likely will in the future), I really wanted to like this plan. But I cannot.

The presentation of the plan is an absolute train-wreck; it looks more like a high-school economics project than a professional plan put together by a mainstream political party. The introduction of the plan does not state the carbon tax rate but does state that the plan would reduce the income tax rate to those earning 37,000 dollars or less to 15%. However the tax bracket for those earning 37,885 dollars already 15 percent! Payroll taxes paid by employers will be reduced and income splitting for families will be introduced - the latter, which in effect, lowers the marginal tax rates for primary earners and raises the marginal tax rate for secondary earners. It also represents a 5-billion-a-year tax cuts to families with earners in different brackets.

The scenarios presented under the introduction present a different story. It indicates that the basic personal exemption will be raised from 9,600 dollars to 20,000 dollars. Sales taxes will be increased by 1 percentage point and a carbon tax rebate will be introduced. It also appears that the payroll tax cut will go to employees, not employers, contradicting the introduction.

The press release sheds some additional light on the plan. The carbon tax rate will be set at 50 dollars/tonne (it is unclear whether the tax will be per tonne of carbon or the more common per tonne of CO2). The tax will raise 50 billion a year and will be on top of existing excise taxes on carbon fuels.

Strenghts of the Green Carbon Tax Plan

There are a few strengths to the plan:

• It is quite ambitious and is on top of existing taxes on carbon based fuels - if enacted Canada would almost certainly see reductions in carbon emissions.
  
  
• The payroll tax relief for business will help ease the burden of the rise in carbon tax. It decreases the disincentive to hiring employees. Unlike a cut to corporate income tax rates, even companies not showing a profit will experience some tax relief.

Weaknesses of the Green Carbon Tax Plan

Beyond the poor presentation of the plan, the payroll tax cuts described show a lack of understanding of how the Canadian tax system works. They fail to account for the facts that:

1. Employment insurance rates are different in Quebec than in the rest of Canada. But the plan treats the rates as being the same.
   
   
2. Quebec has it's own version of Canada Pension Plan - the rates (and revenue from this) are set by the provincial government. How does this plan account for this? Would this tax cut only apply to 9 of the 10 provinces? It does not appear to according to the scenarios - it appears that the Greens plan to merge the Quebec and Canada Pension Plans.
   
   
3. Canada Pension Plan taxes don't go into general revenue, but the carbon tax would. How does this plan account for this?

The lack of any discussion of these issues makes it appear that the Greens simply do not understand the Canadian tax system. Furthermore the choice of taxes to cut are baffling - the Greens appear to have gone out of their way to avoid cutting the taxes that do the most damage to the economy - corporate tax rates and high marginal income tax rates. It would be difficult to come up with a tax cut that gets less "bang for the buck".

Final Thoughts

I sincerely hope that the Green Party modify this plan and clarify some of the details. While I am a supporter of green tax shifts, this plan has little to recommend of it.