Jamble Magazine Green Economy – Green News

April 9, 2018

An unconstitutional tax of just a fee to clean up our act?

Category: Green News – Admin 8:39 pm

A $53.7 million “fee” imposed on electricity users to support green energy programs is not just expensive, it’s illegal, says a study prepared for the C.D. Howe Institute.  That’s because the fee is really a tax, says the study. And taxes must be approved by the Legislature.  “Almost any economist would say it’s an indirect tax,” says Finn Poschmann of C.D. Howe, who co-authored the study with University of Toronto law professor Benjamin Alarie.  The levy was imposed ahead of the provincial budget; it will cost a typical customer about $4 a year.  The regulation creating the new fee directs the Ontario Energy Board (OEB) to assess a levy on local utilities like Toronto Hydro, and on the Independent Electricity System Operator (IESO), in proportion to the amount of power they distribute.  Controversially it could also be used to fund government programs indirectly connected to recovery of  goods or services the government provides to the populace.

In matters of taxation, government authority is extensive, and legislatures may enact laws imposing a wide range of taxes. However, governments are more limited in what they may do without gaining legislative approval. They may use regulation, which is not approved by a legislature, to set fees to recover the costs of goods or services they provide to the people being charged the fee. They may not, however, use regulation to impose taxes that fund the general activities of government. Taxes require legislative approval.

When does a levy become a tax?

A tax is distinguishable from a fee, according to the Supreme Court of Canada, on the basis that taxes are:

(1) Enforceable by law

(2) Imposed under the authority of the legislature

(3) Levied by a public body

(4) Intended for a public purpose.

The most problematic of these criteria in this case is the second, since the levy is not clearly “imposed under the authority of the legislature.” Before taking on the issue of whether the OEB special levy was validly introduced, we consider whether the other criteria are met. With respect to the first criterion, the new levy imposed by Ontario regulation 66/10 is legally compulsory. The distributors licensed under Part V of the Ontario Energy Board Act, 1998 are mandated to pay the amount determined by the OEB, as is the IESO. The third criterion states that to be a tax, the levy must be assessed by a public body. This is satisfied here as the levies are collected by the OEB for the Ministry of Energy and Infrastructure. The fourth criterion is more difficult to judge. Is the levy intended for a public purpose? On the one hand, the fee could be justified as a means of cost recovery with respect to delivering electricity from renewable sources. On the other hand, as there is nothing about the fee that closely connects it to the costs of the electricity that ratepayers consume, there is little to distinguish it from any other provincial taxing and spending program.

He’ll get it some day …. right?

Does the new regulatory fee represent an indirect tax?

Yes because it is collected from distributors in proportion to their electricity sales in support of other government spending, quite independently of the cost of goods or services sold or
the costs of running the regulatory agency. As an indirect tax, it would not be within the province’s legal authority to enact, even if it were legislated.  The fee is being enacted to cover costs associated with government programs enacted by the Ministry of Energy and Infrastructure. These funds are earmarked for conservation and renewable energy programs, including home energy audits and a program that helps industrial and commercial firms switch to solar power.  Although these projects may lower energy costs over time they are not being used to as a direct payment for electricity generation thus rendering them a tax.

Can conservation programs be classified as recoverable cost?

No they cannot.  In no case,  does a province have a constitutional ability to impose a tax – direct or indirect – through regulation alone. Constitutionally valid taxation requires legislation. The government may impose fees and levies to recover the cost for goods and services produced – for example a fee for water distribution – but in regards to the ‘green energy fee’  there is nothing about the fee that closely connects it to the cost of electricity that ratepayers consume, there is little to distinguish it from any other provincial taxing and spending program. 

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