Harper's Sales Tax: The PM and the HST

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When Stephen Harper said I don't believe any taxes are good taxes," he left many astounded that Canada's head of government could make such a statement.

However, is Harper really tax averse? There is evidence that Harper supports subsidies and benefits that buttress corporations; but that munificence does not extend toward Canadians.

For instance, the harmonized sales tax (HST), which the federal Liberals have dubbed the "Harper Sales Tax" (although Liberal leader Michael Ignatieff says that he would not repeal the HST if his party forms government), is an example of a Harper government-advocated tax that offers a handout to corporations and businesses but takes from average Canadians.

Toronto Dominion Bank economists, Don Drummond and Diana Petramala, state in a recent report that the HST will save businesses $6.9 billion. However, prices for goods and services in Ontario and British Columbia, both set to usher in the HST next year, will increase for consumers by 0.7 per cent.

Many Ontarians and British Columbians are beginning to protest the HST -- 13 per cent for Ontario and 12 per cent for B.C. -- recognizing that it saddles consumers with higher costs as the struggle to climb out of the recession continues (while unemployment remains relatively high, a perverse situation economists call "jobless growth").

Certainly the Campbell government in B.C. and the McGuinty government in Ontario could terminate the HST for their respective provinces. But the Harper government offered both an incentive to adopt the HST: $4.3 billion for Ontario and $1.6 billion for B.C.

With cash incentives in hand, McGuinty and Campbell are taking political risks on behalf of the Harper government. When Nova Scotia harmonized taxes in 1999, its Liberal government went down in defeat. In 1991, the Conservative Devine government in Saskatchewan harmonized taxes and was subsequently defeated by the NDP, who then split the taxes.

Of course, many variables contribute to the election and defeat of governments, but if a tax is perceived as regressive (i.e. taxation that supports high income earners and corporations to the detriment of lower income earners), it can be a catalyst for voter discontent.

As British Columbians and Ontarians become vocal in their opposition to the HST, Conservative MPs are distancing themselves from a Harper-supported tax. Ontario Conservative MP, Larry Miller, wrote in an op-ed: "First, I want to make it clear that this was a change initiated by the province of Ontario and was not a decision made by the federal government in any way."

But Miller and his party are closer to this decision than he wants voters to think. Federal Conservative Finance Minister Jim Flaherty said that the HST was "solid" and that he wanted to have the HST implemented across Canada. But by mid-September, Flaherty was also practicing the art of distraction; he said the decision to impose the HST was up to provinces. Apparently, he was told by Harper's office to stop favourably mentioning the tax.

Incidentally, the Ontario Progressive Conservatives, many of whom served with Jim Flaherty in the Mike Harris government, are opposed to the HST.  Ontario PC leader and Harris acolyte, Tim Hudak, denounced the HST as "a permanent tax grab that will result in higher prices on the things we buy with no immediate benefit to consumers despite the premier's promises".

But not wanting to offend his Conservative colleagues, Hudak refers to the HST as the marginally commonsensical "Dalton [McGuinty] Sales Tax".

The Conservatives are anticipating that businesses will pass savings on to consumers, but again, according to the TD Bank report, prices will still rise by 0.7 per cent.

When taxes go up, consumers demand less. The quantity demanded of goods and services drop and while the market price would decrease, consumers would pay this new price plus the new tax. Thus, the incidence of this tax should fall more heavily on consumers.

Worth noting, is an assumption made in the TD Bank study that higher costs due to the HST will be offset by income growth. According to Statistics Canada, middle class income growth has stagnated for the past three decades and those with lower incomes have actually seen a decrease in income; the study’s assumption may not come to fruition.

The Ontario and B.C. governments can back away from introducing the HST. However, an accord signed between the Ontario and federal governments indicates that the HST must remain at 13 per cent until at least 2012. (In attempt to put a positive spin on this inevitable tax, McGuinty said that no jurisdiction has repealed the HST. Untrue; it was repealed by the NDP in Saskatchewan).

Canadians should remember that the advocate of this tax is the same leader who said that no tax is a good tax.

 

Eric Mang served as a political aide in the Harris government in Ontario and the Campbell government in British Columbia. His politics have since shifted left. He works full-time in health policy, part-time on a graduate degree, and writes whenever he can. You can read more at www.ericmang.com.

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