Bank of Canada says scrapping the carbon tax would drop inflation by 16%

The Canadian Press/ Patrick Doyle

In the unlikely event the Liberal Party abandons the carbon tax, the Bank of Canada claims inflation would fall 16%.

On October 30, Bank of Canada Governor Tiff Macklem told the Commons finance committee it "would create a one-time drop in inflation of 0.6 percentage points" from the current rate of 3.8%.

Since January 2023, the central bank has warned of elevated inflation worsened by out-of-control government spending.

"It would be helpful if monetary and fiscal policy was rowing in the same direction," said Macklem. "Any standard economic textbook will tell you [that] if you cut government spending, that will tend to slow growth, raise the unemployment rate, and reduce inflation."

Conservative MP Philip Lawrence asked the governor for how long a period would dropping the carbon tax impact inflation. Macklem said one year.

As of writing, the carbon tax adds 14 cents in costs at the pumps. That is expected to more than double to 37 cents a litre by 2030. 

Danielle Smith reacts to Scott Moe's pushback against the Trudeau Liberal's carbon tax: "I hope the Prime Minister does the right thing. He was prepared to give an exemption one type of home heating oil that benefited one region of the country, he should give it to everyone" pic.twitter.com/WCWD41n2eH

— Rebel News (@RebelNewsOnline) October 31, 2023

Last week, the federal government announced a three-year pause on the federal carbon tax on heating oil, notably excluding natural gas. With the reprieve mostly felt in the Atlantic provinces, Western and Central Canada are notably left out.

"We've heard clearly from Atlantic Canadians through our amazing Atlantic MPs that since the federal pollution price came into force, [...] certain features of that pollution price needed adjusting to work for everyone," said Prime Minister Justin Trudeau following the October 26 announcement.

In response, Saskatchewan Premier Scott Moe said October 30 his province would cease to collect the federal carbon tax should the exemption remain exclusive to the Maritime provinces.

"Isn’t that an admission that the Trudeau carbon tax is making life a lot less affordable?” posed Moe. He clarified that more than 90% of households in Saskatchewan heat up with natural gas.