Michael Chong's Carbon Tax Plan Would Use Revenues To Cut Income, Corporate Taxes

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OTTAWA — Federal Conservative leadership candidate Michael Chong is proposing a dramatic overhaul of the tax system based on new revenues from taxing carbon.

Chong says his plan would cut overall federal income taxes by 10 per cent and corporate taxes by five per cent — while imposing an escalating tax on carbon emissions that would rise to $130 a tonne by 2030.

"We have a once-in-a-lifetime opportunity to both lower income taxes and clean up our environment through the pricing of carbon," Chong said Wednesday at a news conference on Parliament Hill.

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Michael Chong speaks at a news conference on Parliament Hill on Oct. 24, 2016. (Photo: Adrian Wyld/CP)

Chong, one of 10 confirmed entrants in the Conservative race, says Canada already has a working model of a truly revenue-neutral carbon tax in British Columbia.

But his proposal goes much further than simply raising carbon tax revenues and cutting income and business taxes.

Chong proposes to eliminate more than a dozen other federal programs designed to curb emissions, including renewable fuel regulations and coal-fired electricity regulations.

His plan would also eliminate three of the current five federal income tax brackets, scrap half the current $22.9 billion spent on various tax breaks, and double the Working Income Tax Benefit for low-income families to $2.3 billion annually. There would also be a new carbon credit built into the existing low-income GST/HST credit.

"We have a once-in-a-lifetime opportunity to both lower income taxes and clean up our environment through the pricing of carbon."

"The level of detail in the report is truly impressive," economist Trevor Tombe, a research fellow at the University of Calgary's school of public policy, said in an interview.

"He explicitly wants to raise the carbon price to $130 per tonne. That shows he's serious about meeting the 30 per cent reduction target — and he's serious about doing it in the most economically efficient way possible."

Chong, a Toronto-area MP since 2004, says his plan is based on conservative principles using market mechanisms that will get Canada to its 2030 international emissions-cutting target while boosting economic growth.

"Conservatives must have a credible, market-based plan to reduce these emissions," he said.

Breaking from Tory orthodoxy

But the 44-year-old is breaking with almost a decade of Conservative party orthodoxy on carbon pricing, which Chong's colleagues have consistently critiqued as a "job-killing tax on everything."

Conservatives also insist carbon taxes will put Canada at a competitive disadvantage with the United States, the country's dominant trading partner.

Saskatchewan Premier Brad Wall fired off an open letter to the federal government this week that again lambasted the Liberal carbon tax plan.

Prime Minister Justin Trudeau announced last month that Ottawa will impose a floor price on carbon dioxide emissions beginning in 2018 if provinces don't adopt their own pricing model by then.

Provinces must either have a direct carbon tax — such as those in B.C. and Alberta — or adopt a cap-and-trade market that prices emissions, as in Quebec and Ontario.

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Saskatchewan Premier Brad Wall speaks at a First Ministers meeting in Ottawa on Nov. 23, 2015. (Photo: Adrian Wyld/CP)

For provinces that fail to act, the national floor price will start at $10 per tonne of emissions and rise $10 annually until reaching $50 per tonne in 2022.

The federal Liberals say all revenues will remain in the province or territory where they are collected and that provincial governments are free to use the revenues as they see fit — whether for income tax cuts, business subsidies, green incentives or other measures.

Chong's carbon tax would mirror the Liberal system from 2018 — when all provinces will be expected to begin taxing carbon at $10 per tonne — through 2020. Provinces would be allowed to keep the first $30 per tonne of revenues under Chong's plan and would receive federal subsidies if they fully rebated those revenues through provincial tax cuts.

The federal tax component would start in 2021, even though Chong says his income and business cuts would come in the first budget of a new Conservative government in 2020.

"Our carbon tax will in fact be revenue negative for the first several years," he said.

Chong said he's the only Conservative leadership candidate so far to actually propose income tax cuts.

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