Macklem: Elimination of Carbon Tax Would Lead to Single Year Drop in Inflation

The Bank of Canada’s Governor says were the carbon tax to be eliminated tomorrow the impact on inflation would be significant, but the drop would only be for a single year.

Tiff Macklem was fielding questions from MPs at the House of Commons Finance Committee hearings in Ottawa yesterday.

Conservative Ontario MP Philip Lawrence questioned Macklem about the inflationary impact of the carbon tax.

Lawrence was looking for clarity on what would occur were the carbon tax to be eliminated from gasoline, natural gas and fuel oil.

Macklem says the increase in the carbon tax is adding about 0.15 percentage points to inflation each year. He says if the carbon tax were to be eliminated, that would create a one-time drop of 0.6 per centage points which would last one year. “Since you can only eliminate it once, the next year it would have no effect” says Macklem.

Lawrence says that would be a sizeable drop.

“It would make your job…it would be ‘helpful’?” asked Lawrence. “It’s only going to affect inflation for one year” Macklem reiterated.

In the meantime, Macklem does acknowledge that the Bank of Canada is concerned about the impact the carbon tax is having on productivity.

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