New Brunswick can keep former gas tax cut, with some caveats

New Brunswick has been given the OK to keep a past reduction to its provincial gas tax, as long as the government keeps quiet about why it was introduced and how it was funded.

Under updated federal carbon pricing rules that take effect next year, provinces aren’t allowed to cut provincial gas taxes to blunt the impact of increases to the carbon price.

That’s to avoid diluting what the federal government calls the “price signal,” which is intended to push consumers to cheaper and cleaner alternatives.

But in 2020, New Brunswick did exactly that, with a 4.4-cent-per-litre cut to the provincial tax, softening the blow to consumers. In his 2020 budget speech, Finance Minister Ernie Steeves said the province would be “protecting consumers” by ensuring they only saw a 2.2-cent-per-litre jump in prices at the pump.

Prior to that, former environment minister Jeff Carr told reporters that the province was looking to ease the “pain at the pumps” as it introduced a made-in-New Brunswick carbon price after a year spent under the federal backstop.

The cut to the gas tax was projected to cost the province $83 million in 2020, with that loss in revenue to be directly offset through the carbon tax, according to department staff made available to reporters during the 2020-21 budget lockup.

When discussing New Brunswick’s updated carbon tax proposal earlier this year, the federal government wrote that it needed confirmation “that NB is not explicitly allocating revenues from its carbon price on fuels to continue past decreases in fuel taxes that were implemented to offset the carbon price on fuels.”

The province wrote back, promising it would refrain from saying how and why the 2020 gas tax cut was put into place.

“NB commits to not explicitly communicating that revenue from the carbon tax on fuels is being used to offset past fuel tax reductions,” the proposal says.

The don’t-ask, don’t-tell policy effectively asks everyone involved to ignore the reality that the province continues to offset lost gas tax revenue from the 2020 tax cut using carbon tax revenue. The agreement appears to allow the province to keep the tax cut, as long as they don’t link it with the carbon tax.

But Premier Blaine Higgs says there’s no getting around the fact that that is exactly what happened.

“It’s a little late for that, because that is what we did, but we couldn’t do it afterwards, the increases that came afterwards, but that’s exactly what we did,” Higgs told reporters on Wednesday.

Higgs said if the province had its way, it may have continued reducing the gas tax in tandem with increases to the carbon tax.

“We were prepared to make it neutral for taxpayers and … the federal government pointed out was not the philosophy, the philosophy was they wanted fuel to be more expensive,” he said.

Of the $206 million in projected carbon tax revenue this year, about $81 million will flow into general revenues to offset the 2020 gas tax cut. Another $68 million will go towards income tax cuts and $36 million to the Climate Change Fund, with the remainder going to subsidize natural gas used for home heating and to First Nations through tax sharing agreements.