A bad idea, couched in good rhetoric, is still a bad idea

So as another election looks to be unfolding around the corner, the Liberal Party of Canada has unleashed yet another bad idea - it's actually kind of funny how often this happens - and has done (as usual) an impeccable job of hiding behind truly impressive (and, at times staggering) verbiage. Verbiage designed to defend why, exactly, we should pay more tax and suffer an increased cost of living when energy prices are skyrocketing, and our economy is facing a significant risk as a result of the effects of the weak American Dollar on Canadian manufacturing, commercial interests, and tourism. Verbiage designed to couch the risks in enacting such a plan behind words like "daring" and "bold" - when words like "foolhardy" and "stupid" seem more apt to me.

So, before I start to take apart the Liberals new taxation strategy for you, let's get a couple of things underway. First of all, we're going to take as given that the climate change issue has been, once and for all, settled. We're going to take as given that greenhouse gases are causing untold amounts of damage to the environment and that we need to (as a globe) reduce our greenhouse gas emissions to prevent further damage. We're taking these as givens not because they're necessarily true, but because they're necessary premises to be able to reasonably debate this policy shift. There are lots of debates around the internet with varying degrees of scientific complexity on this question that you can browse at your leisure.

Second: we are going to assume that what Liberal leader Stephane Dion has said he will do if elected (in this context) is what he will ACTUALLY do. Obviously, it's impossible to debate the merits of a politicians promise if you assume that all or part of the promise is a lie.

Third and lastly - I have read the official Liberal Party documentation on their new policy. Yes, this is mostly rhetoric, but it does outline the basics of the new plan. I suggest you do the same by clicking here.

So let's consider "the plan". Essentially, how the Green Shift works (according to Liberal propagandists) is to put a noticable, measurable, and increasing direct tax on carbon emissions through the taxation of fossil fuels, beginning in year 1 with a $10/tonne tax on carbon emissions and raising steadily to $40/tonne by the end of the fourth year. (see p. 28 of previous link) This additional tax will be directly returned to Canadians and Canadian business through a series of tax cuts. (see p. 36 for total dollar value of "tax cuts and other benefits", and see p. 42 for a rough budget showing the taxation structure change to be "revenue neutral").

The purpose of this new taxation strategy is "shift Canada's taxation strategy away from income and towards pollution in a revenue-neutral way", and to put a price on carbon to "spur industry to pollute less". This would create "a new demand in Canada for green products and technologies". The oncoming taxation reductions would seek to reduce basic tax rates of the three lowest income brackets by ten, five, and four precent, respectively, with the particular goal "to help low-income Canadians". As well, the new plan seeks to "accelerate and deepen the currently planned corporate tax cuts", "accelerate the capital cost allowance rates for investments in green technologies", and make the Science, Research & Experimental Development Tax credit 25% refundable - making it more attractive to business to invest in green technology in the present.

Actually, when I present it this way, it really looks, on the surface, like a decent idea. So why am I sitting here criticizing it? Unfortunately, the Liberal party policymakers are very good at writing, and very bad at mathematics. The basic considerations show that the Green Shift is indeed revenue neutral - in the short term, from the government's perspective. So let's look at the problems.

There are two issues with this platform that raise alarms with me - the first is the concept of increasing taxation on a decreasing resource (aka: pollution). Unlike other federal "sin taxes," the proposed new carbon tax will be specifically designed to drastically reduce overall carbon emissions - the source of the tax. At the same time, income taxes will be being cut to make the plan, in the short term, revenue neutral. However, as the sum of our carbon emissions as a nation reduces, our government's overall revenue will reduce. This change in revenue source will, when the policy is extended from 4 years and continuing to a longer cycle, no longer be neutral. This shift in taxation policy is a multi-billion dollar deficit in the making. Unfortunately, that has long been the platform of Liberal governments in this country - spend now, change now, and we'll leave the consequences to someone else. In this case, those consequences will be left to the Canadian taxpayer - the very working and middle classes that this platform shift will allegedly "help".

The second issue that I see is the term "revenue neutral". I ask "revenue neutral FOR WHOM?" Perhaps what Liberal policymakers neglect to remember (or comment to) is that there is more to calculating a Canadian's cost of living than simply taxation increases. What the Liberal's attempts to buy our countrymen off with simple tax cuts fail to appreciate is the fact that, definitionally, the proposed taxation shift from income to pollution (essentially from income to production) is, of necessity, inflationary. Unfortunately, as much as this new taxation strategy is designed to shift our economy towards a greener future, economies are large, bulky, and notoriously slow to change direction. Rome wasn't built in a day, and neither will a new, green economy in this country. In the time it takes for this proposed "new economy" to be forged, every stage of the production chain - raw materials exploitation, processing, to final manufacturing and sales - in this country will see an increase in taxation. The cost of those taxes will, in every case, be filtered down to the consumer, resulting in an increased cost of living for the average working Canadian. As this cost filters downwards, there will be a significant push for higher wages amongst the working and middle classes to make up for this increase in cost of living - which will further increase the cost of domestic goods in this country and repeat the process - until a newer, much more expensive status quo is reached. This calculus will actually be slightly higher when directly applied to the fossil-fuel industry itself (ie: gas costs, aviation/transport costs, etc.) Save the taxpayers money? On taxes certainly, but a lower taxation rate is a high price to pay for a hugely increased cost of living.

This new taxation strategy may be politically expedient - designed to appeal to a population where "green" is the new black, but where an understanding of the economic ramifications of such a plan are sorely misunderstood. I can only hope that, come election day, the people of this country band together to reject good politics in the name of a sound, actionable strategy, a strategy that sees investment in green technology and a shift towards a greener future in this country that doesn't come at such a high cost to taxpayers and to our economy. Check back after this weekend and I will present a different strategy, designed to meet tomorrow's need of a greener Canada with todays need to counteract rising energy prices, a too strong dollar, and rising costs of living for the average Canadian taxpayer. I'll present a strategy that makes sense.