As an economist, I specialize in being simple-minded. Being simple-minded, I think that government policies should encourage good things and discourage bad things.
Canada’s leading tax theorist, Jack Mintz, former president of the prestigious C. D. Howe Institute, recently published a study showing that the effective corporate tax rate for manufacturing is 28.6 per cent in 2005. The rate for the oil and gas industry is 6.3 per cent. Manufacturing is something we should promote. Burning fossil fuels is something we should discourage. Try telling your kids that your government subsidizes climate change and penalizes jobs. Your kids will hate you.
In Northern Ontario, the mining industry gets a good deal, an effective corporate tax rate of 7.9 per cent. The real story is in the forestry sector. Forestry is treated like manufacturing. The corporate tax rate for large and medium forestry companies is 28 per cent. In effect, car companies in Ontario subsidize oil companies in Alberta. Forestry companies subsidize mining companies. This could be a front page story for Northern Ontario Business magazine - ”Laid off Northern Ontario Forestry Workers Subsidize Alberta Boom!"
Worse yet, exporting oil drives up the dollar and leads to layoffs in forestry and auto, two of Ontario’s leading industries. At the very least, a simple-minded economist would want to equalize the tax burden. A sensible economist might set the taxes to favour forestry and discriminate against oil.
But we can find simple and sensible policies that will do even more for Northern Ontario. Here is an idea that would fight climate change, improve the Canadian economy and promote growth in Northern Ontario. The Northern Ontario Symmetric Carbon tax (NOSC tax for short) is a charge of $100 per ton of carbon released, combined with a payment of $100 per ton of carbon captured and stored. That is the level that economists like Mark Jaccard think is needed to get people to insulate their houses and start thinking about buying an electric car.
Creating demand for electric cars is the best thing we could do for the Ontario auto industry. It would be a job creation machine.
Taxes on fuel and natural gas wouldn’t be popular by themselves, but we can take all that new revenue and reduce income taxes –just give the money back to the people. Total spending power remains the same, but people buy less fossil fuel.
One of the best ways to lock up carbon is to use wood in buildings. The NOSC tax would pay $100 for each ton of carbon that is locked up in the wood of each new building. Wood is roughly half carbon, so building with Ontario wood would be cheaper – creating demand for Northern wood.
Since the amount of wood is small, compared to the amount of fuel burned, there will still be a lot left to pay for your electric car.
The hidden bonus is that the NOSC tax will encourage people to find new ways to use wood and it will encourage them to think of attractive uses for wood. Wood will be “politically correct." Wood will be fashionable. The demand for higher value wood products will increase. The NOSC tax is economically sensible, environmentally sound and especially good for Northern Ontario.
Around the world we will build more than a billion new homes in the next century. It is important to make sure the homes are part of the carbon sequestration system. The carbon in buildings become more and more important as cities grow and the store of wood in building becomes larger.
So far, the federal and provincial governments don't have ANY plan to promote the use of wood as carbon storage. The NOSC tax is a good first step. It is the only climate policy that is genuinely good for Northern Ontario. It is simple. It is sensible. It encourages something we want and it discourages something we don’t want.
The new Minister of Northern Development and Mines, Mr. Gravelle, must be promoting it already. The Minster of Natural Resources surely understands that Northern communities need it.
Or am I being too simple-minded?
Dave Robinson is an economist with the Institute for Northern Ontario Research at Laurentian University.
drobinson@laurentian.ca
