Seth Klein: Why I’m voting against the HST: It fails the fairness test
Reluctantly (and pending significant reforms in the next few weeks), I’ll be voting against the HST this June. It’s a difficult decision (and indeed some associated with my organization have landed on the other side of this question).
I come to my position reluctantly because: a) I do not relish joining anti-tax campaigns (they tap into a current in political culture that ill serves us in the long term); and b) I accept the arguments that a value-added sales tax such as the HST is more economically efficient than the old PST.
That said, the economic benefits of the HST have been grossly overstated by its proponents. Many of the businesses that will most benefit from the HST (particularly in the resource sector) are much more sensitive to demand-side considerations (namely the global market for their products) than to supply-side considerations (such as taxes) when making their investment decisions.
These caveats notwithstanding, there are core design flaws in the HST that mean the tax as currently structured is simply unfair, and exacerbates trends that have undermined the overall progressivity of B.C.’s tax system for the past decade. Those trends are two-fold:
Ӣ A shift in government revenues from corporations to households; and
Ӣ At the household level, a shift from progressive income taxes to regressive consumption taxes, such that upper-income households have seen a much larger drop in their taxes.
From the time the HST was introduced, CCPA economists have provided nuanced analysis highlighting key flaws, but showing how these can be fixed. Their recommendations, however, have thus far been ignored. The government has stubbornly refused to fix what is broken. And in the absence of a willingness to redress these defects, I am resigned to voting against the tax.
Now comes word that Premier Christy Clark intends to make a “bold” change to the HST before the referendum ballots are mailed. If the government surprises us before the vote and does indeed propose reforms that would benefit families struggling to make ends meet, I’ll reconsider (but I’m not holding my breath).
When comparing the overall corporate tax regime in B.C. to other jurisdictions, there is simply no compelling case that the corporate sector in B.C. was in need of a massive tax reduction (the HST system, by providing rebates for taxes paid on inputs, bestows upon businesses a tax cut of somewhere between $730 million and $2 billion). At it is, corporate tax rates has been dropping for years, and global accounting firm KMPG consistently finds B.C. to be one of the least expensive places in which to do business in the industrialized world. I’m sure many businesses appreciated the tax cut, but there is no evidence they needed it.
At the household level, British Columbian consumers will be paying more (about $1.3 billion more, according to the recent report of the government-appointed HST panel). Fundamentally, the HST and its low-income credit, as currently structured, fail the equity test. The credit largely off-sets the higher HST costs for the poorest British Columbians, but its early and quick phase-out means that many modest and middle income households will be facing higher costs.
It is possible, however, to envision a reformed HST regime that I would be happy to support; changes that would see B.C. realize the economic and efficiency benefits of the HST, while adequately addressing and offsetting the equity impacts of this shift from the PST to the HST.
Some have proposed doing this by simply lowering the HST by one percentage point. That would be ill advised; it would be expensive (about $800 million), and would provide a large benefit to many upper-income households that are not in need of such a reduction.
A much better approach would be to restructure the HST credit, along the lines of the Canada Child Tax Benefit or Old Age Security, such that the phase-out is much more gradual. This more generous credit could be paid for by an increase in the general corporate income tax rate (equivalent to what the corporate sector is saving due to the HST). Such an approach would not impact most of the smaller service-sector businesses that have been harmed by the HST (as they are subject to the much lower small-business corporate income tax rate).
Ultimately, it is unfortunate that we will be voting on a terribly narrow referendum question that will produce no particularly positive outcome either way. As a province, we would be much better served by a Fair Tax Commission, in which we put the entire B.C. tax and royalty regime on the table. British Columbians deserve a chance to thoughtfully deliberate on all the options, and to determine together how we want to raise the revenues we need to meet our social, environmental, and economic goals.
Seth Klein is the B.C. director of the Canadian Centre for Policy Alternatives.
Comments
31 Comments
The HST is good policy
May 24, 2011 at 2:50pm
Respectfully, I disagree.
The social democracies of the Sweden, Denmark and Norway use high VATs and higher income taxes, but lower corporate taxes to fund social policies.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/06/doing-it...
I am wondering why you are advocating stopping the HST now, instead of trying to changing the HST rebate and corportate tax rates when there is a change in government in victoria. It seems that you agree that the HST has undisputed benefits, as per your second paragraph.
LostMyGlasses
May 24, 2011 at 3:00pm
Wait a second, an economist that takes under consideration 'irrelevant' factors, like equity, social good, and middle and lower income families?
Refreshing.
It really wouldn't surprise me if this little 'tax rebellion' wasn't- deep down, really pleasing many in the Liberal caucus and base. They know the more rebates they toss to the public will only go further towards lessening the government intake via taxes and as a result a total reduction in spending and services over all.
Angler
May 24, 2011 at 3:56pm
A very coherent rationale. I'd just like to stress a few things:
- Conservative ideology states that since business creates jobs (and jobs create wealth), then business should pay little if any tax.
One of the many flaws in that ideology is that business cannot create the jobs that generate the wealth without the infrastucture built by taxes. Without schools, hospitals, transit systems, highways, policing (and on and on), business would find it impossible to hire and retain anything other than the most basic, unskilled, untrained workforce. Only a moron would live here.
The ongoing campaign to transfer 100% of the tax burden to individual taxpayers (and that is the real goal) is seductive, but deeply unfair. Any business that earns its livelihood in BC needs to pay a fair share of overall taxation - just as individual workers do.
- As suggested in the article, something as trivial as taxation has never been a key consideration in where our largest corporations operate. As long as BC remains close to the middle-of-the-pack, it simply is not an issue. Those who claim that it is are either ignorant of the facts or deliberately deceptive.
Nor is the "colour" of the current government a factor. Uncontestable numbers show that BC fared as well under the "pinko" NDP as it has under the "blue" Tories masquerading as Liberals. Business did not flee in terror from the socialist hordes, nor did companies stampede into BC when the hordes were driven back by conservative crusaders.
- A tax imposed without consultation or warning, in complete contradiction to the long-standing policy of the reigning government, and immediately after an election campaign during which it was dismissed as an issue, cannot be allowed to stand. If the people of BC tolerate such behaviour, then we will have to accept the fact that government is utterly uncontrollable. At that point, elections would be pointless. And if that happens ...
PossibleFamily
May 24, 2011 at 4:11pm
I'm betting that Christy will make a bad tax worse by giving more of our tax dollars to favoured groups instead of just cutting the rate for all BC residents.
Just what does "family" mean to Christy anyway? Her families first focus is like Harper's tax credits, which are designed to make some fools think they are getting ahead of the "other guy".
Ray I
May 24, 2011 at 4:39pm
Socialists BS! When is it that socialists think that a tax isn't "fair" unless it punishes the middle class (who will benefit from the HST) or companies? I hear Hugo Chavez is hiring people with your ideology. Oh, and get a private sector job and let's see how you view tax policy.
Birdy
May 24, 2011 at 5:04pm
Re: Angler
"...business cannot create the jobs that generate the wealth without the infrastucture built by taxes. Without schools, hospitals, transit systems, highways, policing..."
-Roads, schools, hospitals etc. all existed before governments existed. That is a fact that statists, of both the left and right variety, simply deny, deny, deny.
"...If the people of BC tolerate such behaviour, then we will have to accept the fact that government is utterly uncontrollable."
-You'll have to accept that fact at some point in your life if you're interested in having any integrity with regards to political debate. Governments always grow as fast and as large as possible, it is their nature. America began as the most limited government around, and grew into the imperialist global enslavement regime it is today. Constitutions mean nothing, it's equivalent to taping a "do not grow please" sign to a cancerous tumor and crossing your fingers.
"A tax imposed without consultation or warning, in complete contradiction to the long-standing policy of the reigning government, and immediately after an election campaign during which it was dismissed as an issue, cannot be allowed to stand."
-You're getting warmer, but a tax *imposed* in any fashion, inherently uses the threat of force to make people comply. No amount of consultation or warning changes this. I'm against the HST, but the PST & GST are just as horrible. The moral reasoning for supporting coercive taxation relies on acceptance of the "social contract," which contends that the act of birth bestows legal responsibilities upon the child. This is no more sensible or logical than the "original sin" concept Christians believe in.
If people actually wanted the services that governments allegedly provide, they wouldn't have to be forced to pay for them. The government could just sell them. But then they wouldn't be a government, they'd just be a business.
Neale Adams
May 24, 2011 at 5:07pm
Thanks for that clear analysis, Seth.
I'm still undecided, though.
A couple of considerations: 1) The old PST penalized manufacturers, and encouraged service industries. Manufacturing jobs, at least in the past, have tended to pay more, be more secure, and are more often unionized. Central Canada will have the HST. What effect will returning to the PST have on manufacturing in BC. Will it be significant? (I do note that an uptick in manufacturing is currently assisting the recovery of the economy in both the US and Canada.)
2) How significant is the shift of the tax to middle class consumers? HST proponents claim competitive pressures will lower prices and counteract the tax. One economist puts the figure at 90% of the tax passed on, which I don't believe, but surely some of the savings will be passed on where there is substantive competition. I doubt Telus will pass on savings, but my roofing contractor may have. (I just had my roof redone, and paid $900 in HST, but got a pretty good price.)
3) If the PST returns, we will not be able to bring in a proper value added tax for a long time. If the HST is kept, an enlightened NDP government, acting on sterling advice from the CCPA, would be able to reform it. If we must have a tax on consumption, a value added tax is the best way to do it. I do agree that progressive taxes on income are what we really need, but inasmuch as we live next to the US, there is a practical limit on how high they can go. Still, rather than having a 50-50 split between provincial income tax and the HST consumption tax (they both bring in a bit more than $6 billion), it should be something like 2/3 income, 1/3 consumption.
Dan Clay
May 24, 2011 at 5:40pm
I am voting yes to recind this unfair tax that can only,( once implemented)go up year after year. Make the corporations remit their tax instead of keeping it, and you would get my attention.Of course corporations and big business want this tax, and I do not buy into trickle down economy.
I do not trust Cristy either, spending our money to tell us it is a good thing, vote yes to get rid of this unfair tax, I dont care if we have been given some of the money. We were lied to by Scampbell and the same is happening with Clark, the stopping of the rise in ferry rates, is an election ploy, do not believe that ferry rates will stay at what the liberals claim- if they get in again...more lies,, wake up BC and throw them and their unfair tax out.
Angler
May 24, 2011 at 5:57pm
Birdy wrote:
"If people actually wanted the services that governments allegedly provide, they wouldn't have to be forced to pay for them. The government could just sell them. But then they wouldn't be a government, they'd just be a business."
Well, real life doesn't actually work that way. Consider the example of flood insurance. The reason that it is not available to a homeowner in BC is because the only people who would buy it are those who are at serious risk of flooding. In other words - a very small "pool" of premiums from which to pay a virtually certain, large loss. That just doesn't work, economically.
The only way to provide flood insurance would be through a compulsory, government-run program - to ensure that the premiums of the many would be available to pay for the losses of the few. That's why many countries, including the US, have government-run disaster programs. That's why MSP, EI, and CPP are all compulsory.
Expecting the average person to voluntarily pay for something that he doesn't need (e.g. a bridge in Prince George) - or worse, doesn't THINK he will need (e.g. healthcare) is unrealistic.
I have no real problem with government and taxation. Like everyone, I grouse about the amount, and I have my pet peeves when it comes to spending priorities, but overall ... it beats the alternative (every man for himself).
But if government does not consult and will not listen, well - if I'm going to get screwed anyway, I'd like dinner and a movie first thanks.
Angler
May 24, 2011 at 6:05pm
Neale Adams wrote:
"If the PST returns, we will not be able to bring in a proper value added tax for a long time. If the HST is kept, an enlightened NDP government, acting on sterling advice from the CCPA, would be able to reform it."
Well, that remains to be seen. One particular drawback of harmonization, that few pundits talk about these days, is that all changes now require the consent of both senior governments. Relinquishing the ability to control provincial taxation was the primary objection of BC politicians for years ... including Carole Taylor and her former boss, Gordon Campbell.
Even though I'm a gambler at heart, I wouldn't bet on the chances of an NDP government in Victoria coming to terms with a majority Conservative government in Ottawa over significant HST reforms ... no matter how much sense they might make. Especially if they are advocated or supported by the "pinko Commies" over at the CCPA. ;)