University of Calgary School of Public Policy / by Kenneth J. McKenzie
[From Press Release] The new carbon levy of $30 per tonne, announced in November 2015 as part of the report issued by the Alberta government’s Climate Leadership Panel, is a positive move. However, while there is some discussion in the report of what should be done with the revenues generated by the carbon levy, it is somewhat vague on the details. How is the government really going to spend this money?
A new paper released today by The School of Public Policy and author Kenneth J. McKenzie argues that the revenues from the carbon levy should be used to lower existing taxes – the carbon tax should be revenue neutral, generating no new net revenue for the government. According to the paper “Carbon taxes interact with other taxes in the economy, exacerbating the economic costs associated with those taxes. The total cost to the economy of raising an additional $1 in revenue through the corporate income tax in Alberta is $3.79; for the personal income tax the cost is $1.71. These taxes therefore impose higher costs on the economy than they raise in revenue. ”
Swapping revenue from the carbon levy for these taxes in a revenue neutral manner would lower these costs, generating a substantial return to the provincial economy relative to other uses. If the government wants to fund other priority areas – be it public infrastructure, investment in complementary initiatives to reduce emissions, or even deficit reduction – it is better to finance these initiatives through more efficient and less costly taxes than a carbon tax.