'No free lunch': Sask. government taking credit for low inflation rate only half-true, says econ. prof.

As the provincial government boasts its decision to stop collecting carbon tax is the main factor lowering the inflation rate, a Regina economics professor says it’s not that simple.

“That’s only half the picture,” said Brett Dolter, assistant economics professor at the University of Regina. “So much of this ends up being caught up in world events, like what’s going on in the world that’s leading oil prices to go up or down.”

According to a recent report from Statistics Canada, inflation in the province dropped to 1.9 per cent in January compared to 2.7 per cent in December, something the province said was driven by its decision to stop collecting carbon tax.

Dolter said the drop in inflation is only temporary and people have to think through what else that means for the province.

If Saskatchewan is no longer collecting the carbon price, Dolter said there are economic consequences — the province would still have to send the same amount of revenue to the federal government.

“That revenue will have to come from somewhere,” he said. “It will have to come either from just borrowing, so increasing the deficit, or come from increasing other taxes in order to make up the difference,” noting that rebates would also be lower.

“If we’re no longer collecting the carbon pricing revenues from pollution on when you burn natural gas, that means the amount that goes into the rebate pool is smaller, and so that the amount people get back in those rebates is smaller,” he said.

“If there’s less money going into that pot, then those rebates are going to go down … That means, really, that disposable income goes down.”

The Government of Saskatchewan announced in October that it would not remit the carbon tax on home heating after the federal government offered an exemption for home heating oil. The province later expanded its decision in November to include homes using electric heat.

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Both of those decisions came into effect on Jan. 1, 2024, and the province still has not made a final decision on whether or not to remit carbon tax for the month of January.

Dolter said if Saskatchewan doesn’t submit the carbon price revenues from SaskEnergy, the province may face a legal challenge.

He said the half-truth is that inflation went down, but the full truth is that it doesn’t come from thin air.

“Economists talk about how there’s no free lunch and this would be one of those examples. It sounds like we’re getting a free lunch of this natural gas pricing cut, leading to lower inflation, but we’ll tell you there’s no free lunch,” he said, reiterating the consequences.

“It’s either higher deficits, higher taxes, or lower rebates.”

- With files from David Prisciak and Drew Postey