Stranger than fiction? N.B. must pretend 2020 gas tax cut wasn't about carbon

It's not exactly the multiverse, but the Higgs government in New Brunswick may have to enter a fictional alternative reality as part of its new carbon-tax agreement with Ottawa.

Under the terms of the deal that lets the province keep a 2020 cut to its gas tax, provincial officials have committed to pretend that something they bragged about less than three years ago never actually happened.

In documents released to reporters, the province agrees to never acknowledge the gas tax cut was put in place to offset the impact of the carbon tax, and is being funded with carbon tax revenue.

The province "commits to not explicitly communicating that revenue from the carbon tax on fuels is being used to offset past fuel tax reductions," says a provincial document distributed to reporters late on Tuesday.

That would require some rewriting of history. 

Then-environment minister Jeff Carr told reporters in the fall of 2019 that New Brunswick's pricing plan would "ease the pain at the pumps."

And Finance Minister Ernie Steeves bragged in his March 2020 budget speech that "we will be protecting consumers" from the carbon tax by cutting the gas tax by 4.63 cents per litre.

He said that would offset most of the the new 6.63-cent per litre carbon tax the province was establishing to comply with national climate plan requirements.

"With this reduction, there will be an effective price on carbon of two cents per litre in 2020–2021 on gasoline and motive fuels," he said.

What's more, finance department officials explained at the time, revenue from the new carbon tax was being recycled into provincial coffers to make up for the lost gas tax revenue.

They put a figure on it: $83 million in 2020-21. This year, the figure is $81 million.

'We tied the two together,' Higgs says

Now New Brunswick is not supposed to ever mention those facts again – in return for Ottawa letting the technically offside tax cut remain in place.

"The historical decreases will continue, but the province will not explicitly refer to those reductions as a carbon recycling measure in communications," the provincial document says.

Premier Blaine Higgs appeared to immediately breach that condition Wednesday morning.

"We did communicate [the link] and that was a fact. There's no going around that. We tied the two together. We absolutely did. But we were told we could not do that again." 

The nod-and-wink approach to the 2020 gas tax cut helps both Ottawa and New Brunswick navigate a thorny political problem.

Technically, provinces aren't allowed to reduce gas taxes to offset carbon taxes. The federal rules say that interferes with the "price signal" to consumers to reduce their consumption of fossil fuels.

But in November 2019 Justin Trudeau's federal government agreed to let New Brunswick keep its tax cut in place, which allowed Higgs to become the first Progressive Conservative premier to fall in line with the national pricing plan – a political win for Trudeau.

N.B. points echoed in other provinces

The problem for Ottawa was that other provinces then began talking about using the same trick if they were forced into adopting a carbon tax.

Saskatchewan Premier Scott Moe said in 2021 he'd look at a New Brunswick-style "immediate rebate right at the pump."

The federal response was that would not be allowed under more stringent carbon price rules coming in 2023.

And New Brunswick would not be permitted any further gas tax cuts, either. Steeves's original plan in 2020 was to keep cutting the gas tax every year to offset annual carbon tax increases.

Instead, he cut income taxes in his 2021 and 2022 budgets, which is allowed under the federal carbon pricing rules.

That left the question of whether the 4.63-cent gas tax cut from 2020 would survive the new, tougher rules.

In June, federal officials told New Brunswick that it needed confirmation the province "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."

That was the assurance the Higgs government provided in September, allowing to win approval for its pricing system – which it now relies on to fund energy conservation and climate change mitigation programs.

Higgs insisted Wednesday that despite the references to "past" and "historic" gas cuts, the agreement only governs how the province refers to any future gas tax reductions – such as a hypothetical reduction to address inflation.

"So basically if we do anything in terms of fuel cost revenue, it's got to come out of general revenues, it's got to come out of something totally separate from carbon tax," he said.

As for the 2020 cut, pretending it wasn't about carbon taxes is likely to prove a challenge for the famously direct premier.

"I don't do well with that, the pretending thing. … It's a little late for that, because that's what we did," he said. "That's exactly what we did."