Angry in the Great White North

Liberal Party leader Stephane Dion is about to announce his carbon tax:

The plan, according to sources, would shift the 10-cent federal excise tax on a litre of fuel at the pumps into a broad-based carbon tax that would also apply to other fuels, such as those used for home heating. It would not increase the price of gas, however, the sources added.

Remember that the GST is applied to the use of money itself.  As money exchanges hands, the government takes a cut.  It is transparent and predictable.  Like all taxes, it has a tendency to suppress economic activity, but its transparency means that I know what to expect and make my choices accordingly.  Moreover, at each step in the value chain, the GST paid is applied as a rebate as the tax is paid at the next step, meaning that the tax is only at the final step at the final transaction with the ultimate consumer.

The carbon tax is different.  As a consumer, I don't see it directly.  When I pay for my purchase, I pay for the carbon tax applied to the fuel that drives the manufacturing process at the factory, and to the fuel to run the machines at the outfit the prints the labels, and to the transportation costs, and to the storage costs (especially cold storage for food), and to cleaning and maintenance, and so on and so forth.  Every contribution to the final product increases in cost because every contribution necessarily consumes energy, and energy is now going to be subjected to a tax that grows year after year.  The costs pile one on top of the other to final price of the product. 

Then I purchase the goods or service.  Money exchanges hands.  The GST is applied.

Did I just pay a 5% GST premium on the money I just paid for the carbon tax?  Is that money going into the calculation that determines just how much money is supposed to be returned to Canadians?

I'm willing to bet that I'm not getting that money back in Stephane Dion's revenue neutral fantasy.

Addendum: Let's go through an example.  I used to have to spend $100 in fuel to make a widget that I sold for $150.  Now I have to spend $110 on fuel, thanks to the carbon tax.  Good thing too, since the Earth was about to tip on its axis and fall into the sun if I didn't.  That was close.  Now I charge an extra $12 for the widget -- $10 to cover the cost of the carbon tax and $2 because I know you are expecting the price to go up because of the carbon tax, and so I'm going to gouge a bit.  Now the widget costs $162 instead of $150.  Stephane Dion has the auditor general confirm that I put $10 into federal coffers via the carbon tax.  That means you are going to get $10 back in an income tax cut since I passed the cost to you.  Well, maybe not all of it.  You might get $5 because you're not poor, rural, fixed income, aboriginal, etc, etc, etc.  In the meantime, you shelled out $170 for the widget.  The price tag was $162, plus 5% GST, coming out to $170.

The original widget, plus GST, cost $157.

So you paid $13 more for a widget, and the best you could hope for in a refund is $10, if you were lucky.

And let's not forget.  The more expensive the item, the bigger the spread as the GST takes the carbon tax portion of the price and inflates it.  And the more fuel intensive the process to make the widget, the more distorting the GST affect will be.

[Oops, forgot to add the GST to the original amount.  D'oh!]