Oct 7, 2009

HST: Why do the Feds want it so bad?


As the debate rages in BC about the Harmonized Sales Tax, one curious dimension I’ve been puzzling over is this––why do the Feds want the HST implemented so badly that they are willing to fork over $1.6 billion to the province as an enticement?

And it isn’t just the federal Conservatives. Ever since the introduction of the GST, successive Conservative and Liberal federal governments have been pressuring the provinces to harmonize their provincial sales taxes with the GST. Why?

At one level, there is the explanation that harmonization will simplify the sales tax system, allowing businesses to submit only one set of remittances. But I think the real reason is more substantial.

Ever since the original Free Trade Agreement with the US was instituted, the federal government has really had only one core economic development strategy – boosting exports. We have no meaningful industrial strategy. Our federal governments have not had a real vision for the role of government in economic development, strategic procurement, or the nurturing of new sectors. Rather, all the economic eggs have been in one basket –– free trade and export promotion.

Understood through this lens, pushing both the GST and the HST make perfect sense. These moves towards a value-added sales tax mean that Canadian exporters are spared these taxes (at the expense of Canadian consumers), as exporters can get rebates for any sales tax they pay on inputs. So, these taxes will make Canadian and BC exporters more “competitive.”

All of which raises a much more fundamental question: do we really want to hinge all our economic development goals on exports? As we seek to get serious about confronting the climate challenge (and if Jeff Rubin is correct that rising oil prices mean “our world is about to get a whole lot smaller”), does it really make sense to structure our economic and taxation policies around the goal of export promotion? My guess: The era of ever-increasing trade and tourism will soon be coming to a close. We need a new economic plan.

For analysis of the HST by CCPA-BC senior economist Marc Lee, see here

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