The BC budget, the carbon tax, and the dog that didn't bark

Fans of Sherlock Holmes know his maxim about the dog that didn't bark in the night: sometimes the significance of an event lies in what didn't happen, rather than what did.

In the case of British Columbia's 2013 budget, the dog that didn't bark is the province's carbon tax – still controversial, but still untouched by a provincial government facing a bruising battle for its survival.

For Premier Christy Clark, the temptation must have been very strong to roll back the tax. Clark is facing a tough election in May, and with the opposition NDP now publicly supporting the tax, a clear wedge issue beckoned. Certainly — as the budget document made clear in reporting the results of the government’s review of the carbon tax — there was no shortage of voices calling for the tax to be reduced or eliminated altogether.

And yet the tax survives, largely unaffected. Why?

Part of the reason lies in the fact that opposition to the tax is by no means unanimous; the budget document speaks of “many British Columbians ... supporting the tax." But surely the larger logic at work here is simply this: the carbon tax is good policy and the Clark government recognizes this, to its credit.

As research by Sustainable Prosperity has shown, the tax has — since its inception in 2008 — led to a marked decrease in fossil fuel use in the province (even as that use increased in the rest of the country), and to lower transportation-related emissions as a result. Moreover, that decrease in fossil fuel use and related emissions happened during a period in which the provincial economy continued to grow on par with the rest of the country.

In fact, British Columbia has been able to achieve something remarkable: a decoupling of economic growth from fossil fuel use. Given the vagaries and uncertainties of global oil markets and the risks that those create for any economy, that decoupling puts B.C.'s economic prospects on very solid ground.

Taking an even broader view, however, shows us that B.C.'s real advantage now is in competitive fiscal policy. British Columbia is in much better fiscal health than almost all other provinces in Canada. In fact, if it hadn't been for the hash the province made of its commitment to the Harmonized Sales Tax — and the $1 billion-plus it must now repay the federal government — British Columbia’s books would now be in surplus.

Meanwhile, just east of the Rockies, an alternative fiscal model — the ‘Alberta Advantage’ built on resource revenues and low (or no) corporate and income taxes — just ran into a brick wall.

Corporate and income taxes in British Columbia are among the lowest in North America. The budget did announce a temporary hike in corporate and high-income rates to address the current deficit, which will go some way to eroding that position. But short of increasing the carbon tax rate or reducing spending (neither of which was likely in a pre-election budget), the best that can be hoped for is that those increases will be temporary. As it is, the carbon tax provides B.C. with fiscal room that other provinces just don’t have.

For those whose job it is to assess the impact and success of the carbon tax, the B.C. budget seems a blank page. Nothing really happened — but, given the larger political and fiscal context in which B.C. operates, the fact that the carbon tax 'didn’t bark' is news all by itself.

The tax has now become a mainstream policy instrument with proven fiscal, economic, and environmental advantages to the province. That's how the B.C. government sees it, that's how British Columbians see it — and that's good news for us all.