This is no way to make tax policy. Wednesday’s proposed reforms to the HST provide yet more evidence that what we really need is a Fair Tax Commission –– a full public engagement exercise in which the entire tax regime is on the table, and people can deliberate on how we want to raise the revenues we need.
There are elements of the latest reform package I like (which I’ll get to below), but overall the government’s proposed “bold fix” is a classic case of politics trumping good policy.
What’s my beef with the “fix”?
In promising to lower the HST by two percentage points (from 10% to 12% over the next three years), and in sending families cheques this year of $175 per child under 18 regardless of household income, the government is proposing to spend a great deal of money on people who don’t need it.
True, a two percentage point reduction in the HST will benefit everyone, but the biggest dollar savings would go to the wealthiest households (as they spend the most on goods and services). Likewise, wealthy families with children under 18 will get cheques this year that they will hardly notice in their household budgets (even though, collectively, these cheques will cost the public treasury a lot), while low and modest income people without children get nothing. This is not a wise use of public funds –– it makes much more sense to target money to the individuals and households who really need the help. (Ironically, this is what the government is proposing to do for seniors –– offering additional rebates only to low and modest income seniors –– but for political reasons they’ve chosen a different approach for everyone else.)
The government is proposing to partially pay for this change by increasing the corporate income tax from 10% to 12% (meaning, returning the corporate tax rate to its 2008 level). Now I’m all for that. But Finance Minister Kevin Falcon has made a point of emphasizing he sees this change as “temporary.”
But here’s the bigger problem: Cutting the HST by two percentage points is very expensive –– about $1.7 billion in lost revenue per year once fully implemented. In contrast, increasing the corporate income tax rate to 12% will only recoup about $400 million. That would leave a hole in the budget of about $1.3 billion. So this “fix” would mean the HST is no longer revenue neutral, but revenue negative, and would have to be paid for in either increased debt or (more likely) cuts to public services and programs. (The government is also proposing to delay further reductions in the small business tax rate, which would save about another $300 million, but again, the Minister has emphasized that this delay is temporary.)
In short, Premier Clark has more or less done the same thing Premier Campbell tried just before announcing his resignation; namely, seeking to win the public over with a promise of more tax cuts, the budget consequences (and money for public services) be damned.
A much better (and cheaper) fix, as I recently wrote here, would have been to keep the HST, expand the low-income HST credit, and fully pay for this expansion with increases in corporate income taxes. But again, what we really need is a full Fair Tax Commission, in which we deliberate over the role of a value-added sales tax within the overall tax system (which would serve us so much better than a referendum on such a narrow question).
That said, embedded in the government’s proposed “fix” are some positive developments that need to be recognized.
The campaigners against the HST should take some satisfaction from the fact that they made the government say “uncle”. The government was forced to admit that the HST shifted too much onto consumers and too much off corporations.
More importantly, the government has now acknowledged that we can increase corporate income taxes and the sky will not fall. It is no small irony that when Adrian Dix proposed during the NDP leadership race that corporate income taxes be returned to their 2008 level, he was accused by government representatives and media pundits of being a “class warrior”. Yet now Christy Clark has proposed doing just that (and even gone a step further with a proposed delay to planned reductions in the small business tax rate).
And another rather delicious irony: those corporate income taxes reductions since 2008 were part of the carbon tax’s revenue recycling regime. Meaning, if the government did actually increase the corporate income tax, they would have to amend their carbon tax legislation, which requires that the tax be revenue neutral. Again, I’m all for that. The CCPA has long said that making the carbon tax revenue neutral (and giving big tax cuts to business) made little sense, and that the carbon tax income should be partially used to fund other climate initiatives. So nice to know the new Premier is now ready to break with revenue neutrality there.
Sasha Patrick // Jun 30, 2011 at 11:14 am
Have u forgotten with the Seperated GST and PST, on many items you don’t pay for the PST JUST THE GST. If the HST stays you have to pay for both. Bikes, magazines, snack foods, soil, seeds, food: all these things you only get to pay ONE tax, or no taxes. With the HST you have to pay 12% taxes on EVERYTHING. get it now?
No matter how much money you people say the HST will benifit the common people, IT WON’T in the long run. Over all the government is just paying their government emplyees MORE money while the common people are left struggling from paycheck to paycheck just to live.
Phil Le Good // Jun 29, 2011 at 3:29 pm
In order to have a fully effective Fair Tax Commission would be to change the section containing provincial and federal taxation powers embedded in the Constitution Act 1867.
Phil Le Good // Jun 29, 2011 at 3:00 pm
I find the concept of a Fair Tax Commission interesting however it could find itself with its hands tied as the BC Utilities Commission recently found after it ruled against the government’s energy agenda. Politics rather than good public policy rules the roost these days.
I am also wondering if one could calculate the corporate subsidies in their many cloaked forms that BC grants and whether these subsidies can be recouped into the public’s treasury. I would start with oil and gas subisidies.
Under the PST the public enjoyed many exemptions, I am sure there was a calculation made by the Ministry of Finance that totaled these amounts. I would be interested to see if these ‘lost’ revenues are equal to the amount the HST will add to government coffers.
Perhaps the question about a deficit in the budget if the HST is rejected by BC voters has something to do with how the government managed to squander the billions it bragged about getting from the sale and lease of future drilling rights in the NE sector of our province and perhaps with how they are spending money on dubious public projects (like new roofs on stadiums).
Brad Richert (@bradrichert) // Jun 28, 2011 at 8:17 am
Seth,
I have appreciated reading your thoughts on the HST over the last few months. I believe that when first implemented, opposition was a no-brainer.
With the various reforms (not just the 12-11-10% change) it has become a much more complicated issue. But isn’t that what both sides are feeding off us? It seems that, while not necessarily the case with their voting public, at least the parties have created this into a very partisan-based debate.
They have focused on confusing the public, already vulnerable any time a “tax” is mentioned, rather than educating them.
While I think the fair tax commission would be a great idea, I think if it were to even be initiated, its results would go the way of voting reform. The commission would likely come up with something fair , but somewhat more complicated than 1+1=2 and the public gets scared and does the opposite (if even given the chance to vote on it).
As long as this vote is drawn along partisanship lines, the public loses. Groupthink takes over and people, whether they know it or not, say “my friend votes x and is voting y, so I should vote y.” Don’t tell me you have more faith in the public than that, because I have heard it time and time again as I continue to educate people on the HST.
Just one last thing – if we are going to punish the BC Liberals, as many would like to do, while still keeping the HST… what is our option? Vote for the NDP? A couple of years ago I would have been overjoyed. But with Adrien Dix at the helm, they have gone back to being an immature, whiney party playing politics rather than looking out for whats best for the public. No matter what reforms happen to the HST, NDP pride will fight against it. This mentality is not what I want forming my government.
No, instead, people won’t vote. My prediction is the lowest voter turnout in BC’s history.
Jane Sterk, please step up.
Ray Morris // Jun 15, 2011 at 4:06 pm
The so-called independent panel figured that, with the 12% HST, we would pay 1,330 million more, and corporations 730 million less. Hence government revenue would increase by around 600 million. What would be the comparable figures, say, 3 years down the road when the HST fell to 10%?
Elizabeth // May 29, 2011 at 9:40 am
1 – “Cutting the HST by two percentage points is very expensive . . . .”
Please provide figures on the continuing revenue from the remaining 10%?
2 – Input credits. Government advertising refers to HST input credits for small business. Are there input credits for large businesses also? Were there PST input credits for anybody?
Seth Klein // May 29, 2011 at 2:35 pm
Hi Elizabeth
Prior to the 2 percentage point cut, the 12% HST was forecast to raise about $5.8 billion in the current fiscal year (or about 14.1% of the government’s spending), but this would have increased over time. With a new 10% HST, that would fall by about $1.7 billion (once fully phased in in 2014).
On your second question: Input credit would apply to all businesses.
The Progressive Economics Forum » BC to Raise Corporate Taxes // May 28, 2011 at 10:54 am
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BC to Raise Corporate Taxes // May 28, 2011 at 10:51 am
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hangman // May 28, 2011 at 6:54 am
now if only the ‘Hungry for Power’ party could go further and shift from the bad policy and listen to and implement some of your advice.
FTC because “H”arpers “S”ales “T”ax is ‘Not’ fair whatsoever.
and go after Harpers big corporate buddies and his gifts /tax cuts for them to walk off with and force him to scrap his gifts and reverse course and raise their rates.
Cons already know their tax cuts for their big corporate buddies doesn’t do anything other than line their pockets to run away with.
and the big corporations should know that is Not wise or good for image , relations and business to be on the bad side of the public and taxpayers. Improve relations with the people and business with get a positive return down the road.
Christy also need to end her ‘coalition’ with the contemptuous and misleading spinners of bs and lies Harper crew.
Neale Adams // May 27, 2011 at 6:04 pm
I am somewhat surprised, Seth, that you continue to urge voters turn down the HST, since it seems to me the Government has gone a long way to meeting the objections you raised in your piece of May 26.
Your objection was first the HST shifted government revenues from corporations to households. The Government now has increased the amount corporations will pay, and reduced significantly the amount households will pay.
Second, you objected to the regressive nature of the HST. The Government has introduced a one time payments of $175 per child to families with children, and the same amount to low income seniors. Combining the 2 point reduction in the HST with the payments, I doubt the HST is now more regressive than the PST.
I agree with some of your other objections: that the increase in the corporate income tax could have been greater, that it is promised to be temporary (but we shall see), that giving $175 to all families rather than just low-income ones is wasteful.
But, as Voltaire said, the perfect can be enemy of the good. We agree that, as you put it, “a value-added sales tax such as the HST is more economically efficient that the PST.” I am concerned what returning to the PST, when Ontario and Quebec have a value-added regime, will do to manufacturing in this province. Manufacturing jobs are important; they tend to pay more than service jobs, and they are more often unionized. Yet the PST favours service jobs over manufacturing. We need to make things.
You advocate for a Fair Tax Commission. I agree that our tax system should be studied and adjusted, especially to halt the growing gap between rich and poor. But what I fear is that if the HST is defeated, it will be considered politically impossible to bring in any significant reform of consumption taxes for decades. If the HST is approved, a reform-minded Government might be able to improve it.
trevor // May 27, 2011 at 4:03 pm
Prior to your response Seth, I had googled and found the CCPA Sept 15 presentation to the provincial finance committee, hoping to learn more about your proposal for a fair tax commission. Here’s what was said:
“The CCPA recommends establishing a fair tax commission to objectively assess the B.C. taxation system. The commission would make recommendations for meeting provincial revenue needs in an equitable way that is consistent with our economic development and climate action goals.
All taxes and natural resource royalty programs should be on the table. The fair tax commission should look at how much of the taxation revenue comes from personal versus corporate taxes and how these taxes should be divided between income, consumption and other forms of taxation.”
Maybe your thoughts on this matter are evolving, as there was no mention of discussing what is paid for first. Or perhaps you didn’t want to offend listening legislators by making them irrelevant both to decisions about what society needs and how it is paid for.
I’ll remain interested in your model as it is clarified, how particpants would be selected and funded and terms of reference established for etc. In the immediate term my energies will be focussed on supporting those politicians (and political parties) who are already arguing for better programs and fair taxes in the forums our society has currently established to make these decisions.
Great to see Marc is a permanent feature on CBC’s early edition. We desperately need more of that!
Byron Bona // May 27, 2011 at 2:34 pm
By arguing with Clark’s HST fix, you are condoning the first step towards acceptance. I DON’T WANT THE TAX!
The BC Liberals are doing a Jedi mind trick…treating the issue as a done deal that only requires “adjustments.” The tax has broadened the base of taxable items! Items taxed as either GST or PST have now become a combined HST…higher tax over more consumable items and services. More money to pay on more goods and services. Either tax us through income, or tax us through consumption, but not both…and not on everything! I want the taxes to revert to their previous, limited tax base on items and services, not a compounding of tax, separately, on a broader base of items and services.
If a tax, make it either a tax on consumption or tax on income, not both.
The expense accumulated by the HST depends on the amount of consumption. However, those with less disposable income MUST spend on necessities…there expense is consistent and inevitable. The more affluent don’t have to spend as much because they have much that they need. The impact is proportional to the income and spending ability; however, low income families are actually paying less because they take a sizeable hit on less disposable income being gobbled up. Remember: the 10% HST isn’t in immediately, AND, is on a broader base of goods and service than the separated GST and PST. Wake up people! Let corporations and MLAs (reduce salaries and pensions) pay for it.
Seth Klein // May 27, 2011 at 3:32 pm
I think we can agree on this: the way the government has gone about this has totally poisoned the well for the conversation we really ought to be having.
My dilemma is this: if we were building the whole tax regime for scratch, I think we’d want (for efficiency and equality reasons) to have both a steeply progressive income tax AND a value-added sales tax. We’d probably want to eliminate MSP premiums entirely. We’d want a carbon tax. We’d want steeper resource royalties. And we’d need a much expanded low-income credit system. Well, who knows — the point is to have a real public deliberation on this.
trevor // May 26, 2011 at 3:02 pm
Interesting proposal. What would be the terms of reference for the fair tax commission? Would the question be how to pay for existing programs fairly? If so, I think you’ve missed a key piece of the puzzle.
Isn’t a key problem in BC a steep reduction in government revenue due to reckless tax cuts and parallel cuts to important public services in the name of fiscal responsibility? Wouldn’t the first question be what are adequate kinds and levels of services, followed by a question of a fair distribution of payment for those services?
Seth Klein // May 27, 2011 at 3:08 pm
Thanks for your comment Trevor.
You are quite right. The legacy of personal income tax cuts over the last 10 years is billions in forgone government revenues, heavily skewed towards upper income earners.
So yes, the way I envision a Fair Tax Commission, it would start with a discussion of what we want to collectively pay for, and secondly, how we want to raise that money is an equitable manner.
Paul // May 26, 2011 at 2:10 pm
I appreciate your call for a fair tax commission. There could be nothing more elegant in the world of public policy than respectful, informed public engagement on who pays and for what. Imagine the viewing audience – perhaps not as large as the number who watched the Watergate hearings, but expect it might eclipse the number of viewers of the BC legislature channel.
Doubt you’ll get it though. Once the vote on HST is counted it is highly probable a majority of the electorate will expect politicians to leave the taxation issue alone for a while. No doubt the Liberals will avoid it at all costs (though increased fees will be a reality in the cash strapped 2012 and beyond budgets). The NDP might consider campaigning on it this fall or in 2013 (they’ll have to figure out how to pay for everything they’ll promise) but I really doubt their polling would give the assurance they’d want before hoisting the flag. And imagine the fearmongering they’d have to push back. Far better to be concrete in their proposals. But yup, there is an outside chance they’ll take the plunge.
In the meantime, if what you want is a public debate about taxes – you’re in the middle of it.
Keith Reynolds // May 26, 2011 at 1:25 pm
Thanks for setting this issue in a broader frame. I couldn’t agree more that, as you say, we need “a full public engagement exercise in which the entire tax regime is on the table.”