Aug 21, 2010

HST and the NDP


Let’s face it. You can’t blame the NDP or anyone else enjoying the drubbing the Liberals are getting from Bill Vander Zalm and co. It is incredibly fun to watch.

There is no question that the drubbing is well deserved. Whatever one thinks of the merits of an HST versus the PST it replaced, it was brought in by the Liberals right after the election to reduce the multi-billion dollar deficit they said they wouldn’t have, with a tax they said they had no plans of implementing. And, without any discussion or debate, they shifted over a billion dollars of taxation from business to households. Nasty stuff.

But here is the thing. It would be good if Opposition policy was more than simply opposing, as fun and politically satisfying as that might be. It’s time to start thinking about what to do with the HST in a post-Liberal world. Reverting to the old PST should be a non-starter. The fact is, the PST was an inefficient tax, both in the way it was collected, duplicating the collection of the GST, and in its impact on goods produced in British Columbia.

And, though Mr. Vander Zalm and his right wing allies might disagree, simply eliminating the HST isn’t viable either. We need more public investment in British Columbia, especially in education and families, not less. A credible alternative to the Liberals’ HST needs to recognize that.

So here are a couple of options that should be considered and discussed.

The first is the more modest policy option, something the Liberals should have done, and may yet be shamed into doing themselves. The HST could be reduced to a rate of 9 or 10%. At 9 or 10%, households would face a lower provincial tax on goods than they did with the PST, but this provincial tax would be applied to a broader base. There would be a change in what was taxed, but not the overall level of taxation on households.

The lower HST would reduce the amount of revenues collected by government, but this could be offset by an increase in the corporate income tax rate. Corporations, after all, were the big winners in all this, since they no longer pay sales tax on the goods they purchase. Their cost saving would make room for an increase in their income tax rate.

This option would not eliminate the HST, but it would at least move toward revenue neutrality in a much more meaningful sense than what the Liberals did. It would offer revenue neutrality, albeit in a rough way, for households as well as business.

The more radical policy option would be to do what the majority of British Columbians seem to want — eliminate the HST altogether, without reverting to the old PST. The challenge for a socially responsible government is to figure out how the revenues the HST would have generated can be replaced. One answer I believe, lies in being environmentally responsible at the same time.

We massively subsidize electricity use in this province, especially for large industry, selling power at less than half the cost of new supply.  An obvious and economically and environmentally beneficial way to raise government revenues would be to raise industrial power rates, with the extra revenues going to government.

We also subsidize private hydro power production, charging water rental rates to private run-of-river producers far below what we charge BC Hydro. Raising the private water rental rates to what BC Hydro pays would also generate revenues for government in an economically and environmentally responsible way.

We are reportedly embarking on a cap-and-trade system for large emitters of greenhouse gas emissions. Charging the large emitters for the quotas they need, instead of granting them pollution rights, would generate revenues in an arguably fairer and more appropriate manner than the HST or a general increase in corporate income tax rates.

We have a haphazard and clearly inequitable system of bridge tolls emerging in British Columbia. There isn’t a transportation planner I know that doesn’t recognize the benefit that systematic congestion tolls or road pricing, fairly implemented in all urban regions, could provide. It could not only help reduce gridlock, but generate badly needed revenues for government.

In short, there is a green option, using taxes and charges to complement our energy conservation, greenhouse gas reduction and transportation strategies. Nothing is easy, and protests would no doubt be heard. But government does need revenues, and it is time to start talking about better ways of raising revenues than with the Liberals’ HST.

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