What’s in a name?
In Romeo and Juliet, Shakespeare penned that famous quote “What’s in a name? That which we call a rose by any other name would smell as sweet.” The reference is often used to imply that the names of thing don’t affect what they are, but can we apply this to public finance? Namely, does the nomenclature associated with revenue generating instruments matter?
As it turns out, it does. Take, for example, the latest trend in the fight against climate change. As you know, many provincial governments are finally taking action the curtail green house gas (GHG) emissions and enacting climate plans and these plans, more often than not, are including price schemes for carbon emissions. B.C. was one of the first movers in this area and called their scheme a Carbon Tax. More recently, the Government of Alberta enacted their pricing scheme and called it a Carbon Levy. And the Government of Saskatchewan outlined their alternative approach to Prime Minister Trudeau’s national carbon tax which includes a levy on large emitters.
Is there a difference between a Carbon Tax and a Carbon Levy? Everyone knows what a tax is, but what is a levy? In reality, there is no specific revenue generating instrument known as a levy. Instead, all revenue generating instruments are levies. In practice, particularly jurisprudence, the term levy is solely reserved for those cases when the nature of a revenue generating instrument has been called into question. That is, a government has enacted a levy, but someone is disputing the nature of that levy and the court has been asked to establish what exactly the levy is: is it a tax (direct or indirect), a user fee, or a regulatory charge. That is, to call something a levy, you are calling something a revenue generating an instrument which is not exactly helpful. What is it? A tax? A user fee? A regulatory charge? Those paying the levy have a right to know.
The issue is that each levy, each revenue generating instrument, has different characteristics and different procedural requirements to become approved and the use of its proper name actually tells you a great deal about the instrument. Fees and charges are typically enacted through a by-law at a municipal level or through a specific act or Order in Council at other levels. Both user fees and regulatory charges are cost recovery tools. A user fee is used to recover the cost of a good or service (e.g. public transit, recreation facilities) while a regulatory charge is used to recover the costs associated with the regulation of a right or privilege (e.g. dogs, soil removal). I know that there must be a reasonable connection between the fee or charge and the service or regulation, meaning that surpluses are not permitted. I also know that there must be a narrow link between the fee or charge and the activities to which the revenues are directed, meaning that the fee or change can’t be set willy nilly or as high as they think the citizen can absorb but based on costs and number of users. A tax, on the other hand, is a mandatory payment for the purposes of raising revenue. It can be set according to any guiding principles, or lack thereof, the government sees fit. The revenue from a tax may be earmarked by policy, but unlike a user fee or regulatory charge, is it not required to be earmarked. A tax, though, must be approved by Parliament or provincial legislature and if this procedural requirement is not followed then then this is what is known as “taxation without representation.” That is, the nomenclature tells me a lot about the restrictions, or lack there of, on the revenue instruments and the required procedural requirements to enact the levy.
Using the term levy when you mean tax, user fee, or regulatory charge, obfuscates important policy differences that are important to the fee, charge, or tax paying citizen. I don’t know if you mean the levy is a tax, a fee, a charge, so I know nothing about key characteristics of the instrument. I don’t know if it is meant to be a user pay levy (which is what a user fee and regulatory charge are) or a mandatory levy (a tax). I don’t know if there are limits on the size of the levy (required on user fees and regulatory charges), if there are limits on surpluses generated by the levy, if there are requirements related to earmarking of revenues, I literally know nothing. Worse yet, there is no accountability to government by using the term levy.
I appreciate the Government of Saskatchewan is in a political corner. It has openly said it will never allow a carbon tax, yet their materials read eerily like a carbon tax on large emitters. The Government of Alberta enacted what is clearly a carbon tax in a province that is openly hostile to any and all taxes. The use of the term levy, however, is simply spin, and one which has no place in public finance.
Lindsay Tedds is an Associate Professor of Economics in the School of Public Administration at the University of Victoria and is a Research Fellow at The School of Public Policy, University of Calgary. She writes a blog https://deadfortaxreasons.wordpress.com/ and can be found on twitter @LindsayTedds.