October 23, 2008

Carbon Tax Neutralizes Campbell's Plan

Prior to last night's "news conference" with the Premier, Finance Minister Colin Hansen briefed reporters on the state of the economy. He spoke of drops in retail sales and real estate. Anyone who looked at his First Quarter Report would know that he had already identified those weaknesses, only that bad news was overwhelmed by windfall profits from natural gas. In a few weeks we'll get his Second Quarter Report which will no doubt point out that the weak areas have grown much weaker and the price of natural gas has tanked.

Anyone who pays attention to the news is confronted with horror stories about the economy. The stories aren't forecasts, they are hard economic news about failed banks, emergency measures, stock market loses, job losses and recession. Campbell's news conference was a one day story, but the bad news is relentless with new terrifying stories almost daily. In that environment the Premier's spinners want us to believe that his announcement was not cheap politics aimed at the October 29th by-elections and May 12th provincial election, but a carefully crafted strategy geared at restoring confidence.

Campbell forgot to mention the word "neutral" in his news-hour address last night. His gas tax is set to automatically increase on July 1, 2009 and neutralize the tax cuts he's accelerating. Government's take from the carbon tax will increase from $338 million this year to $631 million next year. The personal tax cuts Campbell announced in his plan will be clawed back when the carbon tax increases on July 1st. The net effect of accelerating the cuts plus neutralizing them with a gas tax increase is a one time cheque, similar to the $100 cheques he mailed out last spring, only this time the payments are largest for those with over $60,000 in taxable income and they are included with tax refunds.

The scheduled income tax cut was made in Section 37 of the Budget Measures Implementation Act (2008), Section 37. where it lowered the tax on the first $30,000 of taxable income from "5.24%" to "5.06%", and on the second $30,000 of taxable income from "7.98%" to "7.7%". Accelerating the reduction of 0.18 on the first $30,000 of taxable income and the reduction of 0.28 on the second $30,000 of taxable income doesn't amount to much for taxpayers, but it adds up to $144 million in lost revenue for the government. For those with over $60,000 in taxable income, the full impact will be $138. For those with $30,000 in taxable income, the impact will be $54. Whether you hit the jackpot with $138, or whether your income is so low you don't pay provincial income taxes, Campbell's accelerated tax cut is not likely to stimulate retail spending in this Christmas season, let alone reverse the drop in real estate sales. Spread over 24 pay cheques during the course of a year, the tax cut is almost invisible. Buried in a tax payment or refund that won't be made until next spring, it is completely invisible.

Invisible tax cuts aren't likely to stimulate confidence, but don't be surprised if they are used to justify spending millions of your tax dollars in an advertising campaign aimed at re-electing Campbell.