By Dan Kelly

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Opinion: The dirty, but not so little secrets of the federal carbon tax Back to video

When the federal government introduced the carbon tax in 2019, small- and medium-sized businesses (SMEs) were told it would be fully revenue-neutral and they would join consumers in getting back some of their carbon tax costs through programs or rebates. After all, especially in a tight economy, many small firms cannot pass on all of their new costs to their customers.

But promises of revenue neutrality and small business rebates have yet to be kept. As a result, support for the carbon tax has disappeared far faster than Canada’s carbon emissions. Today, fully 82 per cent of small firms oppose a carbon tax. How did this happen?

Over the first five years of the carbon tax, more and more small-business owners learned the tax’s dirty but not-so-little secrets.

Secret No. 1: The carbon tax has never been revenue-neutral. Today, the federal government owes SMEs in eight provinces over $2.5 billion in promised rebates. And it owes Indigenous organizations $282 million. As long as it sits on this money its claims of revenue-neutrality will be false.

Secret No. 2: The government has no mechanism to return past or current carbon tax money to SMEs. After launching and scrapping a handful of programs, the government has no mechanism in place to return a dime of carbon tax revenue to SMEs, which is why the notional return account for small business continues to grow. At the end of this fiscal year, it will owe SMEs over $3.1 billion.

Secret No. 3: Most SMEs would be excluded from rebates under the current design criteria. Ottawa’s design criteria for returning carbon tax revenues to SMEs, proposed in 2022 but not yet implemented, will only give rebates to “emission-intensive, trade-exposed” (EITE) firms. Only a tiny fraction of businesses will be eligible for any rebates at all — with the bulk of the money going to businesses with hundreds of employees. If Ottawa proceeds with this approach, the program should be renamed the Big Business Giant Cheque (BBGC) program, as it will have very little to do with SMEs.

Secret No. 4: Ottawa has slashed future SME rebates to help solve its political problems. When Ottawa added all four Atlantic provinces to the carbon tax fun last summer, it faced growing political pressures, resulting in a doubling of the special rebates for rural Canadians. Around the same time, the Chiefs of Ontario launched a lawsuit over the impact of carbon taxes on Indigenous organizations. How has Ottawa responded? Starting in 2024, 93 per cent of carbon tax rebates will be earmarked for consumers (up from 90 per cent in 2023), two per cent for Indigenous organizations (up from one per cent) and only five per cent for SMEs (down from nine per cent). SMEs’ future rebates are being cut nearly in half, lowering their share by $3.4 billion over the next five years.

Secret No. 5: SMEs should be getting 40 per cent, not five per cent, of carbon tax revenue. If it really does see small businesses as a partner in the fight against climate change, the government should provide rebates proportional to the tax they pay. Assuming SMEs can pass along something over half the tax they pay, CFIB estimates SMEs pay about 40 per cent of the carbon tax revenue.

The main reason government can claim most Canadians are getting more back in rebates than they pay in carbon taxes is that others are getting back far less than they pay. Yet again, SMEs are viewed as the geese that lay golden eggs — with the carbon tax serving as an expensive, income-redistributing shell game.

The good news is that these secrets are beginning to get out. Several reporters have caught on to the $2.5 billion sitting on the books in Ottawa. Conservative MPs Marty Morantz and Brad Vis have asked challenging questions in the House about the failure to pay rebates. And, in recent days, Finance Minister Chrystia Freeland and Environment Minister Steven Guilbeault have both said small businesses will get good news on the carbon tax return program “soon.”

But in the special language of Ottawa, “soon” often means years, not weeks or months. Having been promised action for more than five years now, small firms can be forgiven for being skeptical.

The next election may well be fought on whether carbon taxes stay or go. But we need action now on a simple rebate program to unlock the billions owed to small businesses and get the money to them in the months ahead. Next week’s federal budget would be a good place to start.

Dan Kelly is president of the Canadian Federation of Independent Business.