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80% of households receive more from the carbon tax than they pay: university professor

Professor Livio Di Matteo said the carbon tax is not a large contributor to inflation.
Livio Di Matteo
Professor Livio Di Matteo

THUNDER BAY – Professor Livio Di Matteo said the carbon tax is benefiting people who have a lower income.

Di Matteo, who teaches economics at Lakehead University, said the carbon tax has two effects on Canadians – fiscally and economically. 

“The fiscal impact is revenue neutral. That is, the billions of dollars the federal government is taking in are returned to households – about 80 per cent of households actually get back more than they pay in the tax and that is skewed towards lower incomes,” Di Matteo said. 

The economic side measures the impact of the carbon tax on employment and income over the longer term.  

“Here the impact of the tax will be to slow down growth and employment generation by raising the cost of carbon-using activities and the cost to households has been calculated here also,” Di Matteo said. 

“You cannot have a policy to reduce carbon emissions and promote climate-friendly activities without a cost and that will be the cost. 

“The net effect – fiscal and economic – will actually be a net cost to households but again lower incomes will still see overall benefits due to the size of the rebate,” he said. 

As for inflation, there are direct and indirect effects, Di Matteo said. 

“The direct effects – an increase in the cost of gas, fuel, etc. – will add about 0.15 of a percentage point to inflation - or about 1/20th or five per cent of the current inflation rate of 2.8 per cent.” 

There are indirect effects - i.e., the cost of higher transportation costs on groceries, etc. - but the estimates suggest that at most the percentage point share is doubled from 0.15, making the total contribution about 1/10th, he said.

“So rather than 2.8 per cent inflation it might be at 2.5 per cent. It is, all things given, not a large contributor. 

“But again, the question is if there is not to be a carbon tax, what is the alternative? And that alternative will also not be costless.  Everything has a price,” Di Matteo said. 

The carbon tax is currently set at $65 per tonne. If the carbon tax is still around in 2030-31, it will climb to $170 per tonne.

Di Matteo said low income earners will still benefit in 2030, “but over time everyone will be paying more for carbon-based activities.

“That is the basis of the carbon tax – to make those activities more expensive so people will find alternatives. 

“As the public finance adage goes, if you want more of something, subsidize it. If you want less of something, tax it,” he said. 

For information about the carbon tax rebate, click here

This story has been updated to include the link for more information on the carbon tax rebate.

Brandon Walker

About the Author: Brandon Walker

Brandon is TBnewswatch's managing editor. Born and raised in southern Ontario, Brandon has called Thunder Bay home since 2009.
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