With the coming Federal Election, there are a few buzz words going around. One of these buzz words is the Liberal party plan to introduce a carbon tax and have dubbed the plan The Green Shift. This platform has caught my attention in particular because it would provide environment reform in Canada (much needed) along with the potential for a few extra dollars in the tax payer pocket.

What is The Green Shift?

The Green Shift Plan is to introduce additional tax on companies that produce pollution and shift this money to to taxpayers. This plan is meant to be revenue neutral meaning that it’s not a government tax grab.

To be more specific, the Liberals plan on putting a price on Greenhouse emissions at the rate of $10 per tonne for the first year, rising $10 each year until it reaches $40 per tonne. They also claim that government taxes at the pumps will not rise but other fuels will see some increases after the first year.

What Does this Mean to the Tax Payer?

The Good

  • Lowest tax rate will be reduced from 15% to 13.5%.
  • Middle class tax rates reduced from 22% to 21% and 26% to 25%.
  • New universal child tax benefit worth $350/child/year in addition to existing child benefits (what about the existing $1200/child/year UCCB?).
  • Workers making less than $50k/year will receive an extra $250 in tax refunds.
  • Enhanced Working Income Tax Benefit for low income workers.
  • The Disability Tax Credit will be refundable.
  • Lowered corporate and small business rates by 1%.
  • Tax credits for development of green technologies.
  • Increase to the Guaranteed Income Supplement (GIS) by $600/year by year 4.
  • New Guaranteed Family Supplement which will provide a maximum of $1,225 / year for families with children under 18. This will be in addition to the Child Tax Benefit.

The Not So Good

  • Homes that are on heating oil will see increases of up to $16.95/month or $203/year by year 4.
  • Homes using natural gas will see increases of up to $22.16/month or $266/year by year 4.
  • Bad news for truckers, by year 4, diesel costs will increase by $1,700/year.

Real World Tax Savings

Below is a table pulled from The Green Shift handbook which details how much tax savings that you can expect based on your marital/child status.  It seems that a couple with 1 child can expect at least $1,000/year in savings by year 4 of the Liberal plan.  You can also do a specific calculation on their website with their nifty calculator.

Click on the image below to view the full size.

carbon tax the green shift

Conclusions

Personally, I think the Liberals have a decent idea here as Canada is behind in the green times. Not only is this plan environmentally motivated (debatable), it will provide tax cuts for all Canadians. On the other hand, if the Liberals get elected, watch for our Oil companies to pull back which means the the TSX index will be pulled with it.

What do you guys think of The Green Shift plan?

Disclaimer: This post does not represent my political views.

55 Comments

  1. Tetsuo on October 2, 2008 at 5:54 pm

    Did I calculate the pay back period? Actually, yes, I did. I had a family member who spent ~19k on new windows and a high eff furnace reno. Aside from getting somewhere around 7k back in rebates, their heating bill went from ~250/mo to ~100/mo. I’ll let you do the math on that, wouldn’t want to be “condescending” on you now would I? Increased fuel costs make it even more worthwhile.

    And you missed the fact I was giving a hypothetical example about the future, ie. something better than available today…. and instead took it as a personal attack on “what you can understand” means you totally missed the entire point of the post. The whole point of that last line was to emphasize it was a very simplified example of the future and not to be taken literally, but thanks for trying!

  2. Alberta Mortgage Broker on October 2, 2008 at 6:17 pm

    Hi Tetsuo,

    Apologies if I misconstrued.

    Sticking strictly to the math then:

    If your family members are saving $150 per month that’s very attractive. At the same time, it required them to pay $12,000 (after rebates) up front. It’s not simply good enough to say 12,000 /150 / 12 = 6.67 years (which is how long it would take them to pay back the cost of their renos)…

    …we also have to factor in the opportunity cost of paying $12k up front. Assuming that they had the cash to pay $12k up front and didn’t use a HELOC or some other borrowing instrument at interest rates between 4.75% and 19% or so, they still could have invested that $12,000 and earned a return on it. Let’s say they could have earned a conservative 6.5%. Based on my calculations they would have earned about $5,000 in interest over 6.67 years (roughly). That brings the total TRUE cost of the renos back up to around $17,000. My logic gets a little fuzzy here but that makes the total time to pay off the renos at 9.44 years.

    Someone smarter than me would probably be able to give you a more accurate breakdown of this, but the truth is that the real costs of the renos have to include opportunity cost and cost of borrowing (if they borrowed to do it). Don’t forget depreciation on the furnace (especially if the current one had any usable life left).

    Usually with things like this the marginal utility of doing the reno and “saving the planet” has to make up for the fact that it’s not cost effective to do it. Prius owners buy them ’cause it’s a badge of honour – not because it saves you money.

  3. Apply For A Credit Card on October 5, 2008 at 6:17 am

    This will hopefully provide fair pricing within Canada. For our exports, this is an interesting issue – I believe some people are arguing that the longer we go without a carbon tax that it will place a green-stigma on our goods and people will not buy them.

  4. Tetsuo on October 6, 2008 at 5:08 pm

    AMB, I agree there’s definately an opportunity cost. What finally tipped the decision for them was the extra comfort that the upgrade provide, more uniform temperature in the house. What will tip the scale for a lot more people is the even greater monetary incentive once carbon costs are internalized, which is why I support the Green Shift (and would support any plan with a similar goal). And again, this doesn’t just benefit home owners who upgrade to avoid increased costs [or some other specific example], it benefits all taxpayers as their individual tax burden goes down and they might not have to deal with so much particulate from the coal fired plant down the street [if you’re unlucky enough to live near one of course]

    As for the problem of decreased revenue if the plan is as effective as hoped, this is a false concern. If priced accordingly, then the reduction of emissions reduces a corresponding amount of gov expenses for things such as health care. Do things go out of whack if you live in Windsor and the US does nothing? Short term yes, as you’ll still have to deal with whatever blows across, but long term the US will change and by that time Canada will have a strong technical and experience edge on related technologies allowing us to sell to them insead of vice versa. Time for some value investing, lead the market instead of being led by the market.

    Just my 2cents.

  5. john on October 11, 2008 at 4:36 pm

    i will like for sambury to exsplane with all the oil gas col that wi take out the hurt wath is goin to replace the hole in 100 years the ocen will drap is not the polution that coise problem is the club is liter and is cosing so many probles

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