With the carbon tax slated to increase on April 1, the Conservatives have doubled down on their “axe the tax” rhetoric, arguing the tax is making everything more expensive. The Liberals have countered that the carbon tax rebate actually leaves the majority of Canadians better off.
What has received surprisingly little coverage is the unfortunate position of Canadian small and medium-sized businesses. They are inarguably worse off than before the carbon tax was introduced, despite government promises to the contrary. They have received none of the $2.5 billion in carbon tax proceeds allocated to be rebated to them.
A little history here is helpful. Since 2019, every jurisdiction in Canada has had a price on carbon. British Columbia and Quebec have their own systems and a federal carbon tax applies elsewhere.
The federal government is required by its own Greenhouse Gas Pollution Pricing Act to return 100 per cent of the proceeds of its carbon tax to the provinces of origin. To date, 90 per cent of this money has been allocated to be refunded directly to Canadians via the Canada Carbon Rebate, nine per cent to small and medium-sized businesses and one per cent to Indigenous governments.
However, none of the carbon tax proceeds that are allocated to small and medium-sized businesses for fiscal years 2019-20 through 2023-24 have actually been rebated. As Dan Kelly, the president of the Canadian Federation of Independent Business, noted in a February press release, “there is still no system set up to return a nickel to small businesses.”
In February, the government announced that it would increase the amount of the proceeds that consumers receive from 90 to 93 per cent, and that it would double the amount that Indigenous governments receive, from one to two per cent.
Where are the additional funds coming from? From the amount allocated to small and medium-sized businesses. This group will see their share of the proceeds decrease from nine to five per cent.
Lastly, the government has made clear that any rebate to businesses will not be distributed equitably, but rather will be devoted to supporting small and medium-sized businesses in “emissions-intensive, trade-exposed sectors.” Many of Canada’s 1.2 million small and medium-sized businesses are thus unlikely to be eligible for any rebate at all.
If one were starting with a blank slate, there may be sound reasons for structuring the rebate in this way.
It can be argued that businesses pass on their costs to their customers, and that it is therefore consumers who ultimately pay for the tax and consumers who should receive the rebate.
It may also make sense for the government to set aside targeted funding to support businesses in emissions-intensive and trade-exposed sectors. These businesses are competing with companies in other countries that are not necessarily subject to their own carbon tax. A program that helps these businesses reduce their emissions will best enable them to compete internationally.
But the problem is, the government did not design the rebate in this way. It has been promising small and medium-sized businesses these carbon tax rebates for years. This likely resulted in some businesses not passing their increased costs onto consumers, particularly during a period where consumers are struggling with high costs.
To state the obvious, it is bad for business to deny them the ability to effectively plan and it is bad politics to break promises.
We have previously argued that the government treated small and medium-sized businesses fairly with its CEBA loan program. Here, the government has done the opposite. The government should not be surprised at the hostility this tax has engendered when it has failed to deliver on its promises.
