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Tax game a dangerous one for politicians

Other than beautiful scenery and having the same monarch, B.C. and Australia don’t have much in common. And they have even less in common now, because Australia has scrapped its carbon tax, which is still very much alive and kicking in this province.

Other than beautiful scenery and having the same monarch, B.C. and Australia don’t have much in common.

And they have even less in common now, because Australia has scrapped its carbon tax, which is still very much alive and kicking in this province.

The Australian carbon tax was introduced in 2010 by a Labor Party government that had just won an election after vowing to not implement such a tax.

However, while the Labor Party won the election, it did not win a majority of seats. It needed the support of the Green Party to form government and the price for that was giving the Green Party what it wanted: a carbon tax, which Labor had been on record as opposing before the election.

Needless to say, the public was furious. The Labor Party subsequently changed leaders and said it would repeal the carbon tax, but it was still defeated in last year’s election.

There is a striking parallel here, of course, to another tax controversy: the HST that former premier Gordon Campbell sprung on an unsuspecting public after the 2009 election campaign, during which his party had actually stated it had no designs to introduce such a tax.

Like his Australian counterparts, Campbell was driven from office by a tax revolt. Except, the critical difference here is that another big tax brought in by Campbell – the carbon tax – generated no such revolt, and instead appears to have paid off.

In fact, B.C.’s carbon tax actually hurt the party that opposed it – the NDP, which opposed the tax after it was introduced in 2008, and made its opposition to the tax a key part of its 2009 election platform, which was firmly rejected by the voters.

Campbell artfully tied this province’s carbon tax to a corresponding income tax cut, and a significant rebate scheme for low-income earners.

The result has been that any call for a repeal of the carbon tax in this province would be linked to a tax increase. That’s because the tax collects about $1.1 billion annually, which pays for almost $200 million in tax credits and rebates for low-income people, plus a five per cent income tax cut ($235 million) and more than $700 million for a host of business tax cuts.

Getting rid of the tax, then, would increase everyone’s income tax bill by five per cent, hit poor people particularly hard, and hit businesses with tax hikes that would inevitably be passed onto consumers. No wonder the NDP doesn’t talk about the tax much these days.

But the carbon tax also appears to be having the desired impact on what it is supposed to do: lead to a reduction in the use of carbon. According to Sustainable Prosperity, an Ottawa-based “green” research group, fossil fuel use in B.C. has dropped by 16 per cent since the tax came in. Meanwhile, fossil fuel use in the rest of Canada has actually gone up three per cent in that same time period.

And as for Australia, well, its status as one of the world’s worst greenhouse gas emitters per capita will continue. The country relies heavily on its vast reserves of cheap coal for its supply of electricity. The country has also blown about a $7 billion hole in government revenues over the next four years, which will undoubtedly have negative repercussions for the delivery of health care, education and social services. I’m not sure whether the opposite experiences of B.C. and Australia when it comes to a carbon tax means people of one jurisdiction are any more or less environmentally friendly than those in the other. But I do think there’s a lesson here about how to introduce new taxes, whether they are carbon-related or not. The lesson is this: if a government is going to create a new tax, do it just before an election campaign and not immediately after one.

The B.C. Liberals did that with a carbon tax but failed to do so with the HST. The party was badly bruised and was forced to dump its leader, but still won another term in power. The Australian Labor party implemented the carbon tax like the B.C. Liberals handled the HST, and subsequently chewed up two of its leaders before being booted from power.

Playing games with taxes can be very dangerous for governments. B.C.’s carbon tax is an example of the right way of playing the game.

Keith Baldrey is chief political reporter for Global B.C.