LETTER TO THE EDITOR: What is a compounding tax?

Hey there, time traveller!
This article was published 25/04/2024 (406 days ago), so information in it may no longer be current.

Sometimes while watching and reading the news and listening to Pierre Poilievre and his gang of Conservative MPs trying to gain support for their “Axe the Tax” campaign I can’t help getting worked up a bit at the amount of false information they’re trying to spread. I’ll give you a few examples from the April 11 issue of The Carillon column by Provencher MP Ted Falk called On Parliament Hill. In the article the writer says the carbon tax is a tax on everything, gas, groceries, home heating etc. This is a misleading statement. The statement tells me that when I pay for my groceries at the checkout, I’ll have to pay a carbon tax. That’s not true. All input costs are definitely built into the selling price but there never is a direct carbon levy on the product itself. It is not like GST which is applied to single serving foods such as soft drinks or on restaurant meals or take-out meals or paper products. The carbon levy is never a percentage tax but instead a flat rate levy per volume, adjusted once a year, on carbon emitting fuel used in either, heating, production, storage, distribution, or transportation of goods only. Farm fuels used in planting and for crop maintenance, and harvesting are exempt from the levy.

The report writer also compares the carbon levy to GST. He says the carbon levy is a compounding tax, sometimes called stacked tax, not like GST which he says is only an end user tax. False and misleading again. A compound tax is a tax calculated on the untaxed item plus any tax already added. A compound tax is a tax on tax. This tax is added on top of the initial cost plus the primary taxes rather than calculated on the untaxed amount. A good example is GST on gasoline that the Progressive Conservatives brought in. GST is calculated after provincial taxes and the carbon levy have been added to the price. Check at your next fill up. The carbon levy is charged each time more fuel is purchased, but on that fuel purchase only. The Conservatives would have you believe that the tax compounds, tax on tax each time the trucker fuels up or whoever purchases fuel to heat a building. By stating that the carbon levy is a compound tax they would have you believe that the levy grows much as it does in the investment field where we have the “rule of 72”, which means that the investment amount will double each time the investment term has been reached times the rate of interest equals 72. The extra 28 percent earned is the amount earned by the compounding of the interest. The carbon levy increased about 3.3 cents per liter of gasoline or 23 percent on April 1 and will increase at the same rate every year until 2030 but never again at 23 percent per year. It’ll never compound on itself. The 3.3 cents is a small amount when comparing it to the huge price jumps at the pump of gasoline and diesel fuel throughout the year.

The Conservatives would have you believe the cost of food will greatly decrease if the farmers, who grow the food were exempt from paying the levy at all. That’s not the story I read in the farm news papers such as the Manitoba Co-operator. The farmers are not hoping to have the levy removed so they can pass the amount up the food chain to bring down food costs. They are looking forward to having their costs lowered for greater profit.

The Liberals claim eight out of 10 families get back more in direct carbon levy rebates than they initially paid in direct costs. The PBO Yves Giroux says if one looks at the fiscal impact that the levy has and adds the GST added to it and compares that to the rebate, most families are better off. However very little is free and so it is also with our effort to combat climate change. There aren’t only direct costs but indirect costs also. The PBO has calculated the effect the carbon levy has on the economy. He’s taken into consideration the effects on transportation, unemployment and the oil industry and oil stockholder earnings, which have taken a hit. The purpose of the carbon levy was to bring down carbon emissions of which the oil industry is a major contributor. A downturn in their profits only show that the levy is working. The PBO Mr. Giroux has taken the downturn in the economy caused by the carbon levy and divided it up among individuals and families and says these are our indirect costs. Although these are paper numbers only and not in real cash the Conservatives have jumped on this and now claim we don’t get back as much in rebates as our direct costs are.

If you phone Ted Falk’s constituency office, as I did and ask them, they will tell you that you are paying the carbon tax on the electricity you use, don’t believe them. It is not true.

If you support the “Axe the Tax” campaign and vote Conservative this is what you will get. A government which doesn’t have a climate action plan or at least has not come forward with one yet. Also, you can rest assured whatever they do, it’s not going to be free. It’s going to cost you money. You’ll not have to pay the carbon levy anymore, but if you’re in the 80 percent bracket of the population you’ll also lose more in carbon levy rebates than you would have paid out of pocket in the first place. Don’t count on your grocery bill going down substantially. The governor of the Bank of Canada said in 2023 the carbon levy contributed 0.15 percent to the inflation rate. If I add the 23 percent increase on the carbon levy as of April 1, the inflation rate still hasn’t reached 0.2 percent. That’s the only window for price adjustment that the carbon levy has to offer you. You’ll save about 20 cents on a $100.