Need to Know: How much did the carbon tax actually impact inflation?

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Inflation data sheds light on the carbon tax’s effect on inflation

By Trevor Tombe, professor of economics at the University of Calgary and a research fellow at The School of Public Policy

The removal of Canada’s carbon tax on April 1, 2025, was welcomed by many, especially after years of growing unpopularity. Critics blamed the tax for fuelling inflation during the historic spikes from 2021 to 2023, often dismissing researchers who attributed only a modest impact to it. These researchers pointed to broader drivers—global oil prices, rising costs for key agricultural inputs like fertilizer (particularly after Russia’s invasion of Ukraine), and surging housing prices.

And in work published last year on carbon taxes and affordability, my University of Calgary colleague Professor Jennifer Winter and I published analysis suggesting carbon taxes increased consumer prices by roughly 0.5 percent in total over its first years of existence. That’s a small change relative to the nearly 20 percent increase in overall consumer prices over that period.

But with carbon taxes eliminated, we have a chance to see the effect much more clearly.

This week, Statistics Canada released April’s consumer price data—the first since the carbon tax’s removal. Headline inflation came in at 1.7 percent. Without the carbon tax cut, I estimate using other Statistics Canada data that inflation would have been 2.3 percent. Some have cited this drop in headline inflation as proof that the carbon tax had a significant inflationary effect. But that misreads the data.

Inflation measures year-over-year price changes, so one-time tax adjustments produce temporary dips, not lasting trends. The data from Statistics Canada shows that over the six years the carbon tax was in place, its cumulative price impact was about 0.6 percent—roughly 0.1 percent per year. Eliminating the tax removes that 0.6 percent all at once, momentarily lowering inflation by that amount. This is a shift in price level, not in the rate of inflation.

It’s a subtle point, so consider the following graphic. This illustrates that inflation trends over the past six years—adjusted for all indirect tax changes, including sales and gasoline taxes—show a typical difference of about 0.11 percent annually (the red line is above the blue line by roughly that amount, on average). You can also see the effects of the GST holiday and the recent elimination of the carbon tax. In the most recent data point, inflation dipped below where it otherwise would have been, reflecting that 0.6 percentage point drop mentioned earlier.

When inflation peaked at over 8 percent in June 2022, the carbon tax’s role was minimal. Rather than contradicting previous findings, the new Statistics Canada data affirms the modest impact researchers had long reported. This one-year dip will fade, and inflation will return to its true level, driven by underlying economic forces. Similar patterns occurred with the GST’s introduction in the 1990s and tobacco tax cuts later that decade, where inflation fell sharply due to single-policy shifts.

The takeaway: tax changes can have complex, often misunderstood effects on prices. The recent data does not disprove earlier research—it supports it.

What comes next for ‘generation screwed’?

Alexander Brown, director of the National Citizens Coalition

Canadian under-40s can be forgiven for being too deflated to join in on the Carney coronation. One whole week into a new Liberal cabinet that looks a whole lot like the old one, and the spectre of Housing Minister Gregor Robertson already looms large.

With youth unemployment again hitting record-highs outside of pandemics and a tangible exit plan for millions of temporary foreign workers yet to be communicated to working-age Canadian citizens, Nate Erskine-Smith’s quick hook on the housing file, for one of the founding fathers of the Canadian housing crisis, former Vancouver Mayor Gregor Robertson, leaves much to be desired.

That Robertson immediately validated those concerns, by claiming that housing prices shouldn’t come down, as long as the government makes hundreds of thousands of public-housing units—a plan criticized by industry experts and layman alike as being rental-heavy, and more of the dog-crate-condo variety (which are now un-sellable on the real estate market)—couldn’t inspire less confidence.

This tone-deaf stance, his apparent refusal to understand basic principles of supply and demand, coupled with his track record of overseeing Vancouver’s affordability crisis, where the price of homes soared by over 179 percent on his watch, suggests the Liberals have no real plan to deliver on their promise to allow millions of young Canadians into the housing market for the very first time.

For those who can’t afford to wait years for another federal election, let’s hope these are growing pains for a cabinet truly committed to “transformative change” of the less-destructive variety, instead of what so far feels like another Brantford-Boomer middle finger.

This gets ugly, fast, if the status quo on housing continues. Good luck inspiring any displays of “elbows up” among a class of underemployed, forever renters.

You’re not going to be able to bully Alberta into submission

By Royce Koop, professor of political science at the University of Manitoba

Quebec sovereignists have always played the ambiguity game when it comes to separation. According to them, it would be possible for Quebec to secede while maintaining many of the benefits of remaining a part of Canada. Indeed, the notion of souveraineté-association, concocted by René Lévesque in the 1960s to emphasize the economic and diplomatic connections between a future Quebec state and Canada, has always loomed large in sovereignist arguments.

Sovereignty-association (as opposed to just sovereignty) has been key to making separatist arguments more palatable to Quebecers, who are rightly concerned about the economic consequences of separation.

So you can hardly blame Alberta’s new sovereignists for trying to play the same game. This week, a prominent Alberta separatist account on X claimed Albertans could rest assured that even if they vote to secede, they would still maintain their pension and OAS, Canadian citizenship, and Canadian passport.

In the 1990s, Jean Chretien’s Liberal government employed some tough talk to ensure Quebecers knew that separation would have real consequences, and that the big rock candy mountain vision of sovereignty-association promised by the Parti Quebecois might not turn out as planned.

Now, while the Liberal government is tight-lipped about Alberta separation, some Liberals are nevertheless free-lancing with the tough talk. Toronto Star columnist Bruce Arthur took to X to dismiss the separatist claims: “Zero chance, total fantasy.” And Senator Kristopher Wells similarly responded, “I can assure you. No Canadian passport, no citizenship, no pension, and no future if you want to leave Canada.”

Is this correct? Of course not.

Unilateral succession from Canada is not, according to the Supreme Court, legal. But if a majority of Albertans voted in a referendum to secede, the government of Canada would be legally obligated to enter into negotiations with Alberta. Those would be complex negotiations and would surely include consideration of the issues raised by the Alberta separatists, including those related to OAS and pensions. Neither Arthur nor Wells nor anyone can reasonably anticipate the outcome of those negotiations.

I wonder whether trying to threaten and bully Albertans into rejecting the separatist arguments is likely to backfire. In the wake of this little online kerfuffle, some decidedly non-separatist Albertans took umbrage with their senator’s casual threat to revoke their Canadian citizenship. At the very least, the federalist cause needs better spokespeople than a Toronto Star columnist and a Trudeau-appointed senator. They’re not sending their best.

Tough talk might have worked to some extent to short-circuit separatist arguments in Quebec. But just to bring Arthur and Wells up to speed: Alberta isn’t Quebec.

On medical assistance in dying, Canada is already at the bottom of the slippery slope

By Kelden Formosa, a political commentator and an elementary school teacher in Calgary

Faced with a social conservative pointing out the consequences of a progressive idea, the favourite argument of a certain kind of person goes like this: “The slippery slope is a fallacy! We can change this, but it doesn’t mean we’ll change that!”

The trouble with this is that even if the second change isn’t strictly necessary, it’s often quite likely once you’ve headed down a certain path. Culture catches up with law, and what was once the exception becomes the norm.

That’s where Canada is with assisted suicide, which we now euphemistically call “Medical Assistance in Dying” or MAID. The latest example comes from Quebec, where MAID accounts for 7.2 percent of all deaths, provided at no expense by a cash-strapped public health-care system that’s always looking to save a buck.

As La Presse reported last week, an intellectually disabled 24-year-old woman—dubbed “Florence” to preserve her privacy—has had a terrible transition into adulthood, let down by the social services, justice, and health-care systems.

Florence suffers from a rare genetic condition called Prader-Willi syndrome. Cognitively, she’s at the level of a young child, and she has a constant sense of hunger. The group home she was placed in could not prevent her from wandering away, so she would often leave in search of food, including by breaking into neighbours’ homes and eating.

She’s not a dangerous woman—she just has the mind of a very hungry young child. In the words of her lawyer, “She’s not dangerous at all. Apart from her obsession with food, she doesn’t have any malice.” But Florence was arrested and bounced around the prison and health-care systems, without funding for care or placement in the right setting. Finally, she was put into solitary confinement for eight whole days, left alone for 23 hours at a time.

La Presse’s report was rightly treated as a scandal. The opposition called it “stunning” and “inhumane,” while government ministers described it as “shocking” and said it “raises serious questions,” promising an investigation.

But as Quebecers discussed the issue, there was a slightly harder edge to some of their commentary. On the political radio show La Commission, former deputy premier Nathalie Normandeau and Montreal politician Luc Ferrandez wondered what could be done with people like Florence. More funding? Better procedures? A greater effort to integrate social services and the justice system?

Or maybe—just end her life? “I prefer the solution of bringing them to a sort of release. I don’t want to say ‘die.’ But a way to put an end to their pain,” said Luc Ferrandez, alluding to MAID. He went on to describe a “committee of experts” that could decide exactly which disabled people would be euthanized.

Not too long ago, these conversations didn’t happen in Canada. Now they’re happening with some pushback. Soon they may well be happening with less pushback and more quiet agreement, perhaps accompanied by worried glances at our health-care budgets.

Our culture is changing, led by its laws, to one where disabled people are seen as less worthy of life. She hasn’t yet been offered MAID, but now that it’s available, we’re beginning to think of ways to expand it further, to “solve” more problems in our society. Florence’s treatment is a disgrace, a shame on our country. A future where we look at how she was treated and think the problem was her—that’s one nobody should want.

Watch out for that slippery slope and grab whatever rope you can on the way down. It’s a tough slog climbing back up, but we don’t want to see what’s waiting at the bottom.