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HST cut in Nova Scotia: Detracting from real debate about our future

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The Nova Scotia government has just announced that it will cut the HST by one per cent next year and one per cent the following year. This cut will reverse the two per cent increase the government imposed in order to assist it to achieve a balanced budget. Increasing the HST was part of a four year plan to balance the budget, which included increasing taxes and cutting spending. Since this government came into office in 2009, its mantra has been that the government of Nova Scotia needs to “live within its means.” But this focus has detracted from the bigger questions we should focus on during budget time and all throughout a government’s mandate: what does and what should government do for Nova Scotians and how will it pay for what it needs to do? What is its vision?

Its record is mixed on both taxes and spending, with its vision hard to discern, perhaps best exemplified in this year’s budget. It continued down the path set by the previous government, reducing the Large Corporation Tax to zero, and further cutting the Small Business Tax. As for spending, this year’s provincial budget instituted a three per cent cut (of about $10 million) to post-secondary education, while investing $5.5 million into student assistance (knowing that most universities have raised their tuition to compensate for the cuts). There is no additional funding for early learning and child care, or for affordable housing. It provided a little increase in income assistance to low-income Nova Scotians, amounting to, at most, $13/month for recipients.

The government takes great pride in its energy rebate program (rebating the provincial tax portion of HST rebated on oil and electric bills), which will cost approximately $102 million (up $20 million from last year). This one tax expenditure dwarfs almost all other social investments combined; these funds should be reallocated to reducing poverty -the problem it was meant to solve in the first place. This program has many flaws: it benefits even those who can afford to pay their energy bills, it encourages energy consumption, and it doesn’t get at the root causes of why some people cannot afford to pay their bills nor sufficiently help them to do so. Tax credits and rebates do not constitute social policy.

There are many contradictions in this government’s approach, perhaps because it is trying so hard to play the middle. The government increased the HST by two per cent in 2010, and it also added a fifth income tax bracket for people earning above $150,000. By next fiscal year, it will have also directly cut at least $772 million out of public sector spending through its expenditure management program. The costs of these direct, across-the-board cuts are compounded because of inflation.

It seems that the balanced budget is seen as an end in itself, rather than a means to improving the lives of Nova Scotians. However, the justification for balancing the budget -- we are not living within our means -- falls flat. There is no evidence to support it. Are we overspending? Compared to what? Certainly not as compared to other Canadian jurisdictions. To bring Nova Scotia in line with the national average, expenditures would have to rise by over $800 million. Nova Scotia’s programs are already comparatively underfunded; further cuts can only make the shortfall greater.

And whether we are talking about health care, education, housing, child care or social assistance, it isn’t as if we have fewer problems and thus need less spending. On the contrary, our health profile is worse than the rest of the country. We have no Early Learning and Child Care strategy to speak of. Our welfare rates are woefully below any poverty line. Our unemployment rates, especially in many of our rural areas and among our youth, are evidence of the investment that is required now.

Back to the HST. It is true that the HST as a consumption tax is regressive because people pay the same rate regardless of income. And this government did introduce low-income credits, which slightly offsets the HST increase. But we do not support cutting the tax just for the sake of cutting taxes. We do support a more progressive income tax system that will assist us to shift away from (and cut) the HST. Taxes are the price we pay (based on our ability) for first-class public services. That is our bottom-line.

Public services are an essential part of redistributing wealth and moving towards an equal society -- building a Nova Scotia that we can all take pride in. With a debt to-GDP ratio of 35%, there is no need to prioritize fiscal balance to the exclusion of other important needs. What is being further unbalanced in the government’s rush “back to balance”? Our rural communities are struggling against a tide of out-migration, and many people among us are struggling to make ends meet. At the same time, many among us are doing very, very well. In 2009 at the height of the recession, the richest 20 per cent of Nova Scotians took home a whopping 43.5 per cent of total after-tax income -- in stark contrast to the poorest 20 per cent whose after-tax income share was only five per cent.

Persistent inequalities and inequities across our province require our government to lead the way by reframing this debate so that it is about our collective future.

This post first appeared in Behind the Numbers.

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