British Columbia’s 2008-09 budget is seen by many as an attempt to dispel the myth that encouraging economic growth can only be done at the environment’s expense.

Introduced by Finance Minister Carole Taylor in Victoria on Feb. 19, the B.C. budget’s boldest step is the introduction of what is widely seen as North America’s first carbon tax, which comes into effect on July 1.

“This budget is a turning point. It overturns the notion that you have to choose either a healthy environment or a strong economy,” Taylor told the B.C. legislature. “It will help keep B.C. vibrant and growing; it takes a big step toward meeting the challenge of climate change; and it strengthens key public services such as health care.”

The revenue-neutral carbon tax is an extension of Liberal Premier Gordon Campbell’s environmentally friendly “green policies,” which are now front and centre in everything his government does to achieve its overall goal of reducing B.C.’s greenhouse gas emissions by one-third by 2020.

The carbon tax will begin at a low rate and increase gradually to give individuals and businesses time to adjust. It will apply to virtually all fossil fuels including gasoline, diesel, natural gas, coal, propane and home-heating fuels. The government says this will make the tax “one of the broadest and most comprehensive in the world.”

The tax will start at a rate based on $10 a tonne of associated carbon or carbon-equivalent emissions. The rate will rise by $5 annually for the next four years, reaching $30 a tonne by 2012.

This works out to 2.41¢ a litre of gasoline in 2008, rising gradually to 7.24¢ a litre by 2012. For diesel and home-heating oil, it works out to 2.76¢ a litre this year, rising to 8.27¢ a litre by 2012.

However, the Campbell government also introduced significant personal and corporate tax cuts to offset the new carbon tax and promised that none of the approximately $1.85 billion the carbon tax raises in the first three years will be used for program spending.

“The principle is simple,” Taylor says. “Tax carbon-emitting fuels to discourage their use and give the money back to people, back to business, so they have control. They can make their own choices about how the tax affects them.”

At the same time, by making greener choices more commercially viable, it will stimulate innovation and open up new economic opportunities across B.C., she adds.

The carbon tax revenue will be returned through the following reductions in taxes:

> The bottom two personal income tax rates will be reduced by 2% in 2008 and 5% in 2009 on the first $70,000 in earnings, with further cuts expected in 2010. This will cost $784 million over three years.

> Effective July 1, B.C.’s general corporate income tax rate is reduced to 11% from 12%; it will be further reduced to 10% by 2011 — for a total cost of $415 million over three years.

> Also on July 1, the small business tax rate will be cut to 3.5% from 4.5%, with a further cut to 2.5% planned for 2011 for a total cost of $255 million over three years.

> A new climate action credit, which also kicks in on July 1, will give lower-income British Columbians a payment of $100 an adult and $30 a child, increasing by 5% in 2009 for a total cost of $395 million over three years.

> Every B.C. resident will receive a one-time $100 climate action dividend to help them adopt greener lifestyles. At a total cost of $440 million, the dividend will be issued in June.

“B.C. is doing this in a very responsible way and is being very cautious,” says Ian Russell, president and CEO of the Investment Industry Association of Canada. “Whatever it collects from this tax will flow back into the economy to both consumers and businesses. So,there shouldn’t be any dampening impact. By doing it this way, B.C. is showing leadership right across the country.”

But the Opposition New Demo-crats were quick to criticize the carbon tax, saying it will hit rural British Columbians especially hard because they have no alternative to automobiles and no way of increasing the efficiency of their homes.

“Walking, biking or public transportation might be an option for folks in Greater Vancouver or Victoria, but it’s less feasible for people in Prince George or Kamloops,” the Opposition said in a news release. “Those people have no choice but to pay higher and higher prices for gasoline.”

@page_break@The B.C. branch of the Canadian Taxpayers Federation was also quick to jump on the carbon tax and questioned the government’s claim of revenue neutrality.

“The focus on climate change will leave B.C. with a legacy of debt,” says Maureen Bader, the CTF’s B.C. director. “The government was elected on a tax and regulation reduction mandate. To date, that mandate has resulted in tremendous economic growth in B.C. But this so-called ‘revenue-neutral’ carbon tax will be anything but neutral and it will create hardships for families.”

Nevertheless, the tax cuts were greeted warmly by other business groups such as the B.C. Chamber of Commerce and the Vancouver Board of Trade. But while Retail BC also applauded the tax cuts, it expressed concerns about the level of consumer confidence.

“The success of today’s bold green budget is heavily dependent on maintaining high consumer confidence,” says Mark Startup, president and CEO of the retail industry group, which represents more than 3,000 of B.C.’s retailers. “We also hope this budget will not increase the costs of business for retailers, which have been steadily rising over the past few years.”

The new budget also provides more than $1 billion over four years for programs that encourage energy efficiency. There is also an additional $2.9 billion allocated for enhancing health care, taking the total funding increase to $4.9 billion, or 19%, over three years.

As well, the budget papers updated forecast for the 2007-08 fiscal year calls for a surplus of $2 billion. Its three-year fiscal plan forecasts “modest” surpluses of $50 million in 2008-09 and $150 million in both 2009-10 and 2010-11 fiscal years.

The provincial debt is expected to be $35 billion for 2007-08, or $1.8 billion less than budget. Over the term of the new three-year fiscal plan, total provincial debt is forecast to be $37.7 billion in 2008-09, $40 billion in 2009-10 and $42.5 billion in 2010-11.

But the taxpayer-supported debt/gross domestic product ratio is expected to decline to 13.7% in 2010-11 from 14.1% in 2007-08.

“The estimated surplus for fiscal 2007-08 is roughly half that of the previous year, suggesting that the province’s fiscal riches have passed a peak,” says TD Bank Financial Group’s economics department in its budget analysis. IE