Post-pandemic inflation and a worsening affordability crisis have left many Canadians struggling to make ends meet. In their desperation for answers, some have turned to the “axe the tax” campaign as a solution. However, the popular campaign slogan, a constant in Conservative leader Pierre Poilievre’s bid to become Canada’s next Prime Minister, seems to have hit a wall. New research suggests that Canada’s unaffordability crisis has little to do with the carbon tax; the real drivers are a volatile fuel market and corporate profiteering.
Earlier this month, the International Institute for Sustainable Development (IISD) released a report revealing that, in terms of fuel costs, the real driver of inflation is the volatility of international fuel prices, not the carbon tax. Their findings suggest that of the $0.73 per litre increase in gas prices over a year, only $0.03 was due to the carbon tax, with the bulk attributed to fluctuations in global oil markets.
So, if the carbon tax isn’t to blame, what is? During this same period, corporate Canada has been enjoying a sizeable windfall. Last year, they raked in hundreds of billions in pre-tax profits, a substantial increase from 2019 and more than twice the average profit levels of the previous decade. If inflation alone caused these gains, profit margins would have remained stable. Instead, pre-tax profit margins have substantially increased, averaging over twelve percent during the pandemic and remaining high in 2023, well above the pre-pandemic average of about eight percent.
Corporate profits aren’t inherently bad; if they’re used to reinvest in Canada’s economy, they can be a catalyst for economic growth, research and development, and stronger wages for workers. However, our recent analysis shows investment has been stagnant, roughly the same amount annually from 2021 to 2023 as before the pandemic. Instead, corporate Canada has repeatedly chosen to prioritize stock buybacks and dividend payments, activities known to worsen income inequality. In 2023, non-financial corporations spent over two-thirds of their net profits on these activities, enriching their already wealthy owners and deepening inequality.
Industries like oil and gas extraction and grocery stores have seen particularly dramatic increases in profit margins, according to our recent research. Oil and gas, which averaged a -5.4% profit margin pre-pandemic, boasted a 17.6% margin in 2023. Grocery stores, traditionally a low-margin industry, doubled their profit margins from 2.0% pre-pandemic to 4.1% in 2023.
These inflated profit margins are not just a symptom of a recovering economy—they are a significant factor driving inflation and income inequality. From Q3 2020 to Q3 2022, nearly half of price increases went to corporate profits, while just over a third went to higher wages. The richest Canadians have reaped the rewards, with the top one percent seeing their average market income rise significantly from 2019 to 2021, while the bottom half saw no increase at all.
The “axe the tax” campaign also operates on the false notion that shifting monies pegged to tackle climate change would positively affect the economy. Even conservative estimates forecast a $100 billion annual reduction in Canada’s national income by 2055 due to the most predictable costs of climate change. Just last weekend, Canada’s largest city experienced historic rainfall and flooding that brought the city to a halt. Damages to power systems, highways, and subway stations are now estimated to cost the city of Toronto over $1 billion.
In this critical moment, Canada’s price on carbon needs to be strengthened, not abandoned. It’s high time to drop the slogans and lead with policies that can tackle inequality and the climate crisis together. Curbing excessive corporate profits is the first step to a more equitable and sustainable future.
Forecasts from the IMF suggest that Canada is projected to be the fastest-growing economy among the G7 in 2025. Progressive tax measures like raising the corporate income tax rate and implementing a wealth tax can ensure that this larger economic pie is fairly divided and that our growth doesn’t lead us towards a proverbial landfill of climate disaster.
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