PALMER: HST’S UNHAPPY ANNIVERSARY
Teachable moment: Former Liberal cabinet minister Abbott publishes paper comparing B.C., Ontario experiences
From former cabinet minister George Abbott comes a reminder that today marks the anniversary of a momentous public policy decision here in B.C., albeit mostly under the heading of what not to do.
July 23, 2009 was the day the B.C. Liberal government announced that the provincial sales tax would be harmonized with its federal goods-andservices counterpart.
Six years later Abbott, a former political science instructor now toiling as a political consultant, has published an analysis of that disastrous decision in the current issue of B.C. Studies.
“The Precarious Politics of Shifting Direction: The Introduction of the Harmonized Sales Tax in B.C. and Ontario,” focuses on the “naturally occurring experiment” that unfolded when two provinces simultaneously embarked on harmonization of their sales tax regimes.
“Why did the HST survive in Ontario and fail in B.C.?” is the key question. Abbott’s answers explain why the harmonization experience provides teachable moments for pundits, practitioners and students of politics alike.
He starts by explaining how Ontario got it mostly right. At the outset of 2009 Liberal Premier Dalton McGuinty laid the groundwork for the change by announcing that after years of rejecting harmonization, Ontario needed to “take a long, hard look” at the option.
The province was mired in recession and the shift to value-added taxation on the federal (and European) model would improve competitiveness of the manufacturing sector. But it would also shift the burden to consumers, who would pay more in sales taxes even as businesses were able to deduct the cost of inputs.
The McGuinty government realized a need to “soften the blow.” The federal government was offering transition funding on a per capita basis as an incentive f or provinces to harmonize. Ontario decided to pass the entire amount, more than $4 billion, to provincial taxpayers in the form of tax cuts and cash payments.
When the McGuinty Liberals laid out the changes on budget day in late March 2009, the big news wasn’t harmonization — the premier had signalled that was coming two months earlier — but rather all tax relief including $1,000 per household transition cheques.
“Ontario made the HST just one element in a generous tax reform and consumer transition package,“writes Abbott, “sagely surmising that the imposition of broad-based goods and services taxes needed to be softened by personal tax cuts and transition cheques.”
So much for the good example. Now the bad.
B.C. was mired in recession in 2009 and the province had likewise long rejected harmonization. But unlike their counterparts in Ontario, the B.C. Liberals were initially attracted to the option as a ready source of cash — that federal transition funding — to help reduce a yawning deficit.
And because the government wanted the projected $1.6 billion to reduce the deficit, the Liberals offered little in the way of relief to soften the blow for taxpayers. Worse, then Premier Gordon Campbell sprang the change on an unsuspecting public with no warning whatsoever. Worst of all, he did so after a provincial election in which the possibility was barely mentioned and then only as an option that was not on the radar screen.
“Undertaking a major tax shift within weeks of a provincial election campaign in which such a shift was never discussed proved a politically fatal miscalculation for Campbell,” writes Abbott. “The dearth of transition measures strengthened the argument that B.C.’s HST was a ‘tax grab’ rather than a fitting response to a deepening recession.”
Abbott was a senior minister in that government. But his article betrays no cabinet confidences, instead relying on matters reported at the time, plus a followup interview with Colin Hansen, finance minister at the time.
The closest he comes to disclosing the collective state of mind in the government is when discussing the biggest miscalculation of all: “Neither Campbell nor his government anticipated that the ensuing public anger could be effectively harnessed through the Recall and Initiative Act.”
The article devotes some space to discussing the ins and outs of the successful grassroots revolt against the HST, including factors that might have produced a different outcome.
Speculations notwithstanding, the lessons to be learned remain the same.
“The public does not deal with surprises very well,” writes Abbott, quoting economist Don Drummond on the biggest take-away from the HST experience. And never more so, one has to add, than with major changes on taxation. Hence the practice of most political parties to put those upfront in the election platform and also to keep them to a minimum.
Reflecting on another difference between the two jurisdictions, Abbott underscores the reluctance of the Ontario trade unions to join the fight against the HST.
“This is not an issue that the labour movement should take on,” said the head of the Canadian Auto Workers Ken Lewenza, advising good union members not to “buy into this tax rage because if you do, as progressives, we will be destroyed, because you need taxes for a just society.”
B.C. progressives saw things differently. Trade unionists, particularly those in the public-sector unions, were at the forefront of the fight against the HST, hoping that by defeating the tax they could also split and defeat the B.C. Liberals.
It didn’t work out that way of course, which in turn suggests that B.C.’s HST experience offers as much of a teachable moment for progressives as it does for tax-cutters.