N.S. finance minister says he can't cut a provincial tax on fuel because Ottawa objects

Every litre of gasoline or diesel Nova Scotians pump into their vehicles contributes 15.5 cents to provincial coffers through the motive fuel tax, but Finance Minister Allan MacMaster says cutting into that $260-million pool of money is not in the cards — and he blames the federal government.

Speaking to reporters at Province House Wednesday, the MLA for Inverness said the Trudeau government has forbidden the province from reducing any tax that would negate the carbon levy Ottawa is likely to soon impose on the province.

"They've just simply said we can't do it." MacMaster said. "There is a federal document that you cannot go and offset the carbon pricing because it would defeat the purpose of what they're trying to do, which is trying to raise the price of fuel, so people stop buying it."

Provincial cabinet ministers have repeatedly referred to the coming federal tax on fuel as the Liberal carbon tax.

Nova Scotia doesn't want a federal carbon tax, but only went halfway to meeting stringent new federal rules to curb greenhouse gases.

As part of the provincial plan, the Houston government imposed a carbon levy on Nova Scotia Power and the cement maker, Lafarge, this fall. But it has steadfastly refused to do the same on fuels such as gasoline, diesel and heating oil.

Newfoundland and Labrador reduced its provincial fuel tax, officially known as the motive fuel rate, almost in half earlier this year as a temporary measure to help motorists in that province.

MacMaster said he didn't know why Ottawa would have given the province the green light to cut the tax, although he suggested there may have been partisan considerations.

"They have a provincial Liberal government there, maybe they got a better deal, I don't know," said MacMaster.

This leaves the Houston government in a situation where it's ready to defy Ottawa on a carbon tax on fuels, but is not willing to go against its wishes on a tax that's completely under provincial control.

Commercial and farm vehicles as well as fishing vessels are exempt from the motive fuel tax.

"The federal government does not want us interfering in the price signal that's sent by the carbon tax," said MacMaster. "So if we lower a tax that offsets the tax they're trying to add, they don't want that to happen."

"And as you know, the federal government, we depend on them for a significant source of revenue that comes into the province. So there's transfer payments, the health transfer, the social transfer."

Asked by reporters if Ottawa had made an explicit threat to cut transfers, MacMaster said that was a better question for the federal government.

The federal carbon pollution pricing benchmark

Nova Scotia's Finance Department later provided reporters with a background document from Environment and Climate Change Canada that spelled out the requirements for meeting the federal government's 2030 climate change emission reduction targets.

Among the stipulations, that provincial "government measures do not weaken the price signal, for example by giving instant rebates that are tied to the amount of carbon price paid or by explicitly reducing fuel taxes in order to offset the carbon price."

The document does not provide any information on what might happen to provinces that refuse to comply.

"What would they do back to us? I'm not going to speculate on what that would be," said MacMaster, just minutes after mentioning possible transfer cuts.