The unhappy reality of revoking the HST

Photograph by Linda Solomon

The case against the Harmonized Sales Tax has resonated in many sectors across British Columbia. Who can blame people? According to a number of statistical analysis done by Statistics Canada, after Canada Day, we can all expect to be shelling out more for things once exempt from the long arm of the tax man. Feeling the impending pinch, people naturally lash out. Hence the success of the grassroots Anti-HST campaign.

Like it or not, for the time being, the tax will move forward. But, suppose the recall legislation being buttressed by hundreds of thousands of signatures actually succeeds and revokes the legislation; what would that mean for British Columbia?

For starters, legally, it is constitutionally unclear whether it is possible for an Anti-HST bill in British Columbia to override legislation originating from Parliament of Canada. But more to the point, it may mean some hard, budgetary choices – for the government, and you.

The HST is a product of a federal-provincial deal. In brief, the Federal government through the Canada Revenue Agency collects all proceeds from the combined sales taxes. It then returns the proportions back to the provinces who have agreed to the deal. There is parallel legislation at the federal and provincial levels. Given the BC legislature and the Federal Parliament are both sovereign in the sense that neither has automatic predominance over the other (at least without going through substantial constitutional litigation), one can see how it is constitutionally suspect whether BC can revoke a standing Federal law.

In any case, such queries are academic. The rub of the deal that brought about the HST was the 1.6 billion dollar transfer from the Federal government to the BC government. This 1.6 billion has been integrated into this year’s budget, as well as budgets for the next two fiscal years. Revoke the HST and suddenly that $1.6 billion dollar pillar becomes a glaring fiscal gap. Suddenly, BC’s year-to-year budget shortfalls increase by hundreds of millions of dollars. When you factor in the interest payments on the extra debt, which, depending on the long-term borrowing rate, can approach $80 million per year, suddenly BC’s financial outlook appears increasingly disquieting.

For individuals, higher deficit and higher interest payments require one of two primary responses – increase your revenue, or cut your expenses (with a combination of the two usally the result). The same is true for the BC government. It can either find another source of revenue, by raising say, income tax, or it can cut government spending. Cutting spending is something that is happening right now anyway in some sectors, and few would like to see that trend exacerbate. And, as demonstrated with the Anti-HST Campaign, nobody likes another tax. But these are some of the hard choices British Columbians will have to face if we revoke the HST (which, for some, is per se a hard choice, to be sure).

It is something to think about. In the United States right now, we are seeing state governments (read: California) literally collapsing because of their inability to raise revenues via taxation. Many Americans have the relatively absurd belief that they are over-taxed, and will not acquiesce to any further taxation without their express permission.

States are hamstrung by this, and thus facing severe existential budgetary crises. Spending is being slashed – meaning services that many depend on are being cut completely or deeply scaled back. There is even talk of a double-dip recession (the cryptic “W” variety) emerging, this time coming from the U.S. state governments.

While we may think we are immune to such hard realities, British Columbia could be facing its own modest austerity measures without that $1.6 billion supporting provincial coffers.

It may not seem like much given that the total provincial budget is nearly $40 billion, and the B.C. government has entered into a number of projects that dwarf that $1.6 billion (the Olympics, the Gateway Project, the Canada Line), but that still does not explain away the absence of that money. It is a costly swing on the provincial ledger. For individiduals as for governments, it all adds up.

Nobody likes a new tax (with the possible exception of tax lawyers and finance ministers). But British Columbians have a civic duty to be aware of some of the potential unhappy consequences of revoking the HST before coming to a decision.

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