Strategic Thoughts

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December 3 , 2009

Ignatieff Guarantees HST Cash-Cow

Just because the harmonized sales tax (HST) is a fait accompli doesn't mean it is a dead issue; in the next few years some economists will compare predictions against results and many voters will seek revenge.

Nothing can stop the HST thanks to Liberal Leader Michael Ignatieff pledging support of the federal Liberals for the legislation. That pledge came a day after provincial Finance Minister Colin Hansen signed the detailed agreement that commits BC to repaying $1.6 billion in transition funding if it backs out of the deal before 2015. One can argue that is a small price to pay since we would only be losing what we wouldn't have had without the bad tax, but the odds are nearly zero that a new government after the provincial election in 2013 would suffer a $1.6 billion penalty rather than wait two more years to either withdraw or renegotiate the provisions of the tax.

The HST is a done deal, until at least 2015, although the rate could change any time after July 1, 2012. The GST has been in effect for 18 years; all that has changed over the years is the rate for the GST.

While Premier Campbell claims that the HST is "the single most important economic measure we can undertake as we vie to strengthen our province's economy" (Hansard, Nov 25), some might wonder why the United States continues to reject that type of tax, even though it is clearly in need of measures to strengthen its economy. Some in the US are arguing for a VAT (value added tax like the GST/HST) on the grounds that it is a "money machine". Adoption of the tax may have less to do with strengthening the economy and more to do with efficiently picking taxpayer's pockets. Perhaps Campbell meant strengthening government revenues rather than strengthening the economy.

The September 2009 budget documents included a table which showed estimated HST revenue as $6.5 billion, sufficient extra revenue to fund income tax cuts, point-of-sale rebates, housing rebates and energy exemptions while still leaving the government "revenue neutral". In other words, it's a tax grab. Inflation will diminish the value of the income tax provisions while increasing the value of the HST take.

Campbell will wear it because he promised he wouldn't do it, but like the GST, no government will kill that cash cow! Several federal Liberals, Dosanjh and Martin come to mind, are likely to lose their seats over Ignatieff's support for the HST. With the next provincial election 41 months away, it is far too early to guess how it will affect Campbell's successor.


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