Higgs income tax cut signals a shift in Conservative carbon policy, say economists

The Higgs government's latest move on carbon taxes is winning applause from conservative thinkers and economists who say it's another sign of a shift among right-leaning politicians on the issue.

The province's modest income tax cut to partially offset the carbon tax is a good policy choice and a better option than more spending on climate programs, according to fiscal hawks and small-government advocates.

"This is a very, very positive move for Conservatives to take a serious look at," saysKen Boessenkool, an economist at the Max Bell School of Public Policy at McGill University and a onetime advisor to former prime minister Stephen Harper.

"I'm glad he's moving forward. If we're going to have a carbon tax, we should want it to be as neutral as possible, as economically positive as possible and frankly as conservative as possible."

Economist Maria Lily Shaw at the Montreal Economic Institute, a libertarian think-tank,says other provinces with Conservative governments should follow Higgs's example.

"I hope they follow the steps of New Brunswick," she says.

Earlier this month Progressive Conservative Finance Minister Ernie Steeves introduced legislation to cut the provincial income tax to make up for part of this year's increase in the carbon tax. It will reduce income taxes for 420,000 New Brunswickers by a small amount.

The bill was approved by a committee of MLAs on Tuesday and is expected to be passed into law next month.

The tax cut uses $28 million of the $163 million in carbon tax revenue to fund the income-tax cut. While it's small, Boessenkool says it's an important shift in taxation that should help the economy and advance conservative goals.

"Conservatives should want to tax things that are shrinking greenhouse gases rather than things that are growing income."

Shaw says a tax cut is especially helpful in New Brunswick, where she says people pay higher taxes. "They really do deserve it."

A carbon tax is also more likely to keep government from growing too bloated, Boessenkool says, because it hitches public finances to a source of revenue, emissions, that will probably shrink over time.

Higgs initially joined a fight by several PC and conservative premiers against the federal carbon pricing plan, but he reluctantly decided to comply in 2019 after the Trudeau government was re-elected.

Last year he offset his new provincial carbon tax with a cut to the gas excise tax, a cut that remains in place this year. But after Ottawa warned that cutting the gas tax even deeper wouldn't be allowed this year, he opted for an income tax cut instead.

The PC government is also spending some of the revenue, putting $36 million in a fund for climate projects. The Opposition Liberals say the $28 million paying for the income tax cut should go into that fund too, to pay for even more climate projects.

But Boessenkool says that's illogical and suggests Liberals don't have faith that the tax itself, a policy introduced by their federal party, will reduce emissions.

"The purpose of a carbon tax is not to make government bigger," he says. "The purpose of the carbon tax is to introduce market based mechanisms to get people to use less carbon."

Under the national climate plan, Ottawa leaves it up to the provinces what to do with their carbon tax revenue as long as the price itself meets the federal standard.

But, not all fiscal hawks are applauding Higgs for embracing a conservative-oriented carbon tax.

"What we'd rather see is the carbon tax get repealed," said Renaud Brossard of the Canadian Taxpayers Federation.

While the CTF is happy Higgs is offsetting some of the impact, he disagrees with Boessenkool that a carbon tax can serve fiscally conservative goals.

He says CTF members became "irate" when federal Conservative leader Erin O'Toole recently embraced a carbon price and that attitude isn't going to change. "I don't think there's such a shift happening."

During the committee debate this week, Steeves said a single person making $25,000 a year would see their taxes cut by $42 this year. Someone making $40,000 would save $81 and someone making $80,000 would save $83.

Half of the benefits of the tax cut will go to people making between $43,835 and $87,671, while people earning below $43,835 will get 36 per cent of the savings.

Conservatives are increasingly coming to realize that without a credible climate change plan, we're not going to get elected.-

The Opposition Liberals argued that the tax cut should be tweaked to do even more for lower income people, and Boessenkool says one option would be a rebate for people in that category.

Steeves said other government programs already exist to help those people and the tax cut was designed in part to send a message about the province.

"It's about framing things and getting people to want to move to New Brunswick, getting people to grow here in New Brunswick," he said. That comment prompted Green MLA Kevin Arseneau to label the tax cut little more than a marketing plan.

Boessenkool says the income tax cut may also be designed to help with the framing of Conservative politicians.

"Conservatives are increasingly coming to realize that without a credible climate change plan, we're not going to get elected," he said. "But I certainly am heartened thatConservatives are taking this issue seriously."

Shaw calls the Higgs tax cut only "partially positive" because it's small. She says the Progressive Conservatives should use all of the $163 million in carbon tax revenue to fund a much larger income tax cut.

Boessenkool agrees. "I'm a big fan of whatever penny gets raised by the carbon tax being sent back in the form of income tax cuts," he says. "My answer would be 'absolutely.'"

He won't say whether anyone from the Higgs government has contacted him for advice on its carbon tax policy.

"When my phone rings, I answer it, yeah, so I'll just leave it at that."