ANALYSIS-Carbon tax offers risk, reward for Canada Liberals
14 May 2008 15:40:37 GMT Source: Reuters
By Randall Palmer OTTAWA, May 14 (Reuters) - Canada's main opposition Liberal Party is considering staking its electoral chances on imposing a carbon tax on already soaring energy costs, and then returning at least some of the money through income tax cuts. Stephane Dion won the leadership of the Liberal Party 17 months ago on a green platform and appears ready to defy conventional political wisdom that in tough economic times voters are less inclined to sacrifice for the environment. "We will put a price on carbon and we'll do it in a way that will be fair for Canadians and beneficial for the country," Dion told reporters this week. He said he was considering either a carbon tax or a cap-and-trade system, whereby big polluters are given greenhouse gas emission limits, and have to buy the right to emit more. They are specifically ruling out new taxes on gasoline, sensitive to possible political fallout when prices are already at record highs. "There is one immutable principle in any plan that we may or may not put out: We will not be increasing the price of petrol at the pumps," the chief environmental spokesman, Liberal Member of Parliament David McGuinty, told Reuters. That would leave heating oil, natural gas and electricity generated by coal or oil -- used in homes, industry and commerce -- as prime targets. The message on no gasoline tax hikes has gotten lost in the broader political jousting, and the minority Conservative government has been warning of increases on everything from gasoline to the cost of home-heating fuel. "The real issue is tax-guzzling Liberal spending. We will not have any of it," Industry Minister Jim Prentice told Parliament this week. It idea has Toronto Star columnist Chantal Hebert warning of a carbon tax minefield. "If the Liberals want to take the sting out of the concept of a carbon tax, is campaigning on the slogan 'your wallet for the planet' really the way to go in the next election?" she wrote in Wednesday's edition. BROADER EXCISE TAX Dion is considering modeling a new tax on one proposed last month by respected University of Calgary economist Jack Mintz. He recommends broadening the federal excise tax of 10 Canadian cents a litre on gasoline to other fuels. The current gasoline tax is equivalent to a carbon tax of about C$42 ($42) a tonne of carbon dioxide, the leading greenhouse gas blamed for climate change. Mintz says a restructured fuel tax would raise an extra C$12 billion to C$15 billion for Ottawa annually, without hiking gasoline taxes. That potential new pot of money has the Liberals excited about being able to deliver income tax cuts, and thereby improve productivity, as well as show leadership on environmental issues, which hold a consistently high priority with the public. "I think Canadian people aren't stupid. I think they know that we need to deal with the economy and the environment in a competent, robust, well-supported fashion," McGuinty said. He hopes the Liberal plan will be revenue-neutral -- meaning it is a tax shift rather than an extra tax -- but he says that has not been decided. If the Liberals do go for a carbon tax, the Conservatives will almost certainly mount ads in the next election campaign pointing out a flip-flop. "There will be no carbon tax," Dion said in October in a speech in Edmonton, Alberta, the capital of Canada's main energy producing province. "I will be a prime minister you can trust." With news that the Liberals are now mulling a carbon tax, Conservative Environment Minister John Baird declared: "They can't be trusted." Whatever the political or economic merits of a broad carbon tax, it would enable the Liberals to distinguish themselves both from the right-leaning Conservative government and their main rival on the left, the smaller New Democratic Party. NDP leader Jack Layton says a carbon tax is increasingly out of favor internationally and he said his party favors taxing only the big polluters and then spending the money on projects to reduce emissions. The next election must be held by October 2009 but there is talk about the Liberals forcing a vote this autumn and making carbon pricing a key issue. ($1=$1.00 Canadian) (Editing by Rob Wilson)
