The federal government is reducing the amount of financial relief small businesses receive from carbon pricing revenues in order to increase the size of the rebates it provides to rural households.
That’s because the government still owes companies more than $2.5 billion in promised carbon pricing revenue for the first five years of the carbon pricing program, and refuses to say when that money will flow. Despite that.
Dan Kelly, president of the Canadian Federation of Independent Business, said small businesses are already paying more than they owe, and this change will make the shortfall even worse.
“It’s very unfair,” Kelly said.
“We expect the level of anger about this tax to increase even further among small businesses as business owners learn that this tax is an even bigger rip-off.”
The CFIB estimates that small businesses contribute as much as 40% of the government’s total carbon price revenues. Clean Prosperity, an economics and climate change think tank, estimates the proportion to be closer to 25%.
But it was never set to receive more than 7 percent of the revenue, and that amount has now been reduced to 5 percent.
The City of Ottawa intends to return $623 million in carbon pricing revenue to businesses from 2024 to 2025, according to information posted on the federal government’s website last week.
From 2023 to 2024, the government has allocated about $935 million to small and medium-sized businesses, a 50% increase from when the carbon price itself was $15 per tonne lower.
This comes as the federal government increases the rebate it pays to rural households, which initially received a 10 percent top-up to their carbon rebate. As of April 1, that percentage will rise to 20%.
Prime Minister Justin Trudeau announced the move last fall, pledging to exempt heating oil from carbon pricing for three years.
He said the government had and would continue to help small and medium-sized enterprises “transform” their operations to save energy, but added funding for local rebates would come from elsewhere. I accepted that I needed to.
“With every policy, we have to make choices,” Prime Minister Trudeau said last October.
Questions about this change to Environment and Climate Change Canada and the Department of Finance Canada have so far gone unanswered.
The change also comes as Ottawa is only paying a fraction of what it originally promised to small businesses.
The carbon price was designed so that 90% of the money raised from consumers and small businesses would be given to households in the form of rebates.
Small and medium-sized enterprises (those that do not have a significant carbon footprint of their own) can receive approximately I was supposed to get 7% back.
The rest was to be shared between Indigenous communities, municipalities, hospitals and schools through a myriad of programs that contribute to improving energy efficiency.
While carbon rebates have been delivered to households as promised, other programs have stumbled from the start due to various challenges, including the COVID-19 pandemic.
To date, just over $100 million has been returned through the program, including $35 million to small businesses, $60 million to schools, and nearly $6 million to Indigenous communities.
The failed launch prompted Finance Minister Chrystia Freeland to commit to a new system for distributing the $2.5 billion owed to small businesses over the first five years of the carbon pricing scheme.
The plan, announced in 2022, was to target companies in “emissions-intensive and trade-exposed sectors”, but it is not yet clear who will be targeted. No details were disclosed other than that the company’s share of the pie is shrinking.
Environment Canada was asked about the $2.5 billion commitment earlier this month, but did not provide details.
“The Government of Canada is working hard to launch a fuel reimbursement program,” the ministry said in an emailed statement.
This change is not only unfair, Kelly said, but it defeats the whole purpose of carbon pricing.
“The basic principle of a carbon tax is to tax carbon-based activities and allow people to make decisions to use that money for low-carbon activities,” he said.
“If you don’t give the money back, the whole concept won’t work.”
Michael Bernstein, executive director of Clean Prosperity, said he doesn’t think the cuts are justified.
“I think there are legitimate concerns there.”
Bernstein said he advised the government to offer companies tax credits to offset the amount they pay in carbon pricing.
