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HST's death a blow to Harper's fiscal federalism agenda

David Parkins for The Globe and Mail/david parkins The Globe and Mail

British Columbia voters were pretty generous to the federal Tories in the national election this year, which makes it ironic that they have effectively drop-kicked to the pavement a key plank of the Harper government's fiscal-federalism agenda.

In May, Stephen Harper's party won 21 of 36 seats in the province. But provincial voters' recent 54-per-cent rejection of the harmonized sales tax in a referendum has effectively halted federal Finance Minister James Flaherty's ambitions to harmonize the federal goods and services tax with provincial sales taxes across Canada for reasons of national efficiency.

The HST referendum was a vote by B.C., for B.C., and employing legislation that is unique to the province. However, the result sent a chilling message across the country that will likely prompt Manitoba, Saskatchewan and PEI to rule out HST agreements. And, of course, it's likely to be a very long time before any B.C. premier is brave enough to raise the subject again. Maybe when the Olympics are next in Canada.

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Agreements in Ontario and most Atlantic provinces, and Quebec's 1992 adoption of an HST (with federal compensation the subject of ongoing talks), mean most of Canada's population will eventually have harmonized sales taxes, which may be some consolation to the Tories. But in the words of Tom Flanagan, a former adviser to Stephen Harper, "It's dead in the West."

Mr. Flaherty, who had little to say about all of this in the past week except for a terse, bland statement promising respect for provincial decisions on provincial taxation, once seemed enthralled with spreading the HST.

"I have long said provincial sales tax harmonization is the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses," he said in 2009, when Ontario Premier Dalton McGuinty was thinking of embracing it. "The federal government is willing to work with all non-harmonized provinces, including Ontario, to facilitate the transition to a harmonized sales tax."

(For all this rhetoric, federal Liberal finance critic Scott Brison – the Liberals got all of this rolling during the Chrétien era – notes the Tories did little to help sell the tax in B.C. or elsewhere by wading into sometimes furious provincial debates. "They have refused to share any political risk or pedagogy to explain any tax change, and left provincial governments flailing in the wind," he said in an interview. "If it's important politically to the federal Conservatives, they ought to be putting some skin in the game politically.")

A government ambition deflated. It should sound gloomy, but observers say it isn't necessarily bad political news for the federal Conservatives.

Mr. Flanagan scoffs at the suggestion the Tories will pay a political price over the demise of "a technocratic idea for which there was never any popular demand," but adds Mr. Flaherty should have known better than to fuss around with a policy inherited from the federal Liberals.

"It was never a Conservative idea. I don't know why Flaherty grabbed onto it. I guess he's been sold on the virtues of it by the Department of Finance, but the Department of Finance is a storehouse of politically toxic ideas," the University of Calgary political scientist said.

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Mr. Flaherty will move on to bigger issues concerning economic growth and job creation, suggested Tom Courchene, a prominent economist at Queen's University in Kingston, Ont. "So I don't think it's uppermost in Flaherty's agenda," he said.

Pollster Nik Nanos said it's a public policy setback because the government appeared to be committed to the idea, but it won't be a political setback unless it fumbles talks with B.C. on repaying $1.6-billion in transitional funds Ottawa sent to Victoria for adopting the tax.

"National harmonization of sales taxes is a very ambitious goal. No one should underestimate how ambitious that is in a confederation," he said.

"Like all things in a confederation, you take what you get. And you hope for another day to get more, and I think that's probably the strategy of this particular government."


British Columbia: 12 per cent (talks with Ottawa to dismantle pending)

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New Brunswick: 13 per cent

Newfoundland and Labrador: 13 per cent

Nova Scotia: 15 per cent

Ontario: 13 per cent

Quebec: 13.5 per cent, effectively

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About the Author
B.C. reporter

Ian Bailey is a Vancouver-based reporter for The Globe and Mail.  He covers politics and general news. Prior to arriving at The Globe and Mail, he reported from Toronto and St. John’s for The Canadian Press.  He has also covered British Columbia for CP, The National Post and The Province. More

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