British Columbia's defeat of the harmonized sales tax (HST) in a referendum is an indication that some level of democracy is alive and well in the province. I suppose overthrowing a tax by referendum is also preferable to overthrowing it – and the government – by way of bloody revolution, as we're seeing in other countries this year.
Was it a collective act of shooting yourself in the foot to stop the pain in your arm? Yes. But the voters have spoken and the HST will be gone in two years.
I cannot think of a public policy initiative in modern Canadian history that was more poorly implemented, more poorly sold and more poorly managed than the introduction of the HST in B.C. It will be in public administration and political science textbooks around the world for generations to come as an example of "how not to do it." The chapter will be called Amateur Hour. Maybe someone will turn it into a musical called Send in the Clowns.
To help with the research, here are a few things the Liberal government did wrong, as well as my thoughts on what could happen now that B.C. will have to find a way to reverse the benefits of the tax, hire tax collectors on the provincial payroll, and pay Ottawa back the $1.6-billion sent to the province for transition costs to switch to HST.
This is a huge problem. The agreement between Ottawa and B.C. spells out that not only will the $1.6-billion have to be repaid, it's payable 180 days after Ottawa gives the province notice of a "material breach." This means that if the federal government gives notice on Sept. 1, 2011, the money will be payable on March 1, 2012.
If it's not repaid, Ottawa can set-off against the weekly HST payments it makes to B.C. under the agreement.
The blame for this disaster clearly rests with the provincial Liberals.
First, the HST was introduced immediately after an election it wasn't campaigned on, and this outraged many citizens, especially former premier Bill Vander Zalm, who became a lightning rod for outraged voters who thought they had been lied to (which arguably they had).
The premier at the time, Gordon Campbell, allowed himself and the HST to be defined by Mr. Vander Zalm who, to be blunt, made questionable statements to the public about the effect of the tax at every opportunity. Whether he didn't like the perception that Ontario and Quebec politicians would now "control" a tax that had been within provincial jurisdiction, or that he didn't really understand value-added taxes such as the HST, I can't say. As for the latter, Jason Myers of the Canadian Manufacturers and Exporters Association informed me of a meeting he was at where Mr. Vander Zalm was speaking. When asked what sort of sales tax he would favour if he didn't like the HST, Mr. Vander Zalm said to the group: "A VAT applied across the board."
Who knew?
There was a profound lack of leadership on the issue that doomed the referendum from the get-go, both on the part of Mr. Campbell and his successor, current Premier Christy Clark. Rather than go head to head with Mr. Vander Zalm in the town halls of B.C. to better explain the tax, or to correct Mr. Vander Zalm's math, or to remind younger voters that he instigated the Property Purchase Tax that added thousands of dollars to the purchase price of homes in B.C., the provincial Liberals lost Mr. Campbell (who resigned as a result of the public outrage), and also lost control of the message. They distanced themselves from the debate as if the HST were an alcoholic aunt that no-one wanted to acknowledge as part of the family.
It was left to people like UBC law student Chris Thompson to persuade British Columbians, through a YouTube video, of the merits of the HST and the fallacies of Mr. Vander Zalm's arithmetic. It appeared there was no-one in government that had the guts to stand up to Mr. Vander Zalm and the other anti-HST proponents, leaving it to Mr. Thompson, tax lawyer David Robertson, UBC economist Kevin Milligan, the Stickman and, on occasion, writers like me.
It would have been better to not convert to HST at all than to have converted and risked reconverting to PST three years later. But that's what we've got now. And to be fair to Mr. Vander Zalm, Bill Tieleman, Chris Delaney and NDP Leader Adrian Dix, they won, didn't they?
Second, some members of the business community, which arguably stood to gain from the efficiencies inherent in all VAT taxes, were not on board until it was too late, or they were tepid in their support, or they weren't on board at all. The B.C. Restaurant and Foodservices Association, for one, never fully came on board in support of the HST. One client of mine in the restaurant business told me when future provincial governments inevitably add 7-per-cent PST to restaurant meals – which were always subject to PST in Ontario anyway – B.C. restaurants may end up regretting the fence their associations sat on, as they won't be entitled to the corresponding input tax credits they would have received under HST. This is especially true for restaurant construction and renovation costs (remind me not to tell them "I told you so").
Third, it should have been brought in at 10 per cent on implementation. It's hard to fight a tax reduction.
Fourth, although the health care system, the education system, pensions, social assistance, legal aid, the justice system, the police and fire departments, and countless other important public services are funded through the tax system, no one really wants to pay tax if they can help it. Given the opportunity, and in the absence of something like a war, the majority of people would rather vote against a tax than vote for one. That's human nature. If the referendum had been to extinguish the 7-per-cent PST and replace it with nothing, we'd have seen a similar result.
So having a province-wide referendum to implement a tax that added 7 per cent to the price of restaurant meals, haircuts and dance lessons – and admittedly, other services that were not taxed under the old PST – was probably doomed to fail. The legislature should have legitimized the tax. That is what legislatures are for. Otherwise, let's get rid of them altogether and have referendums on everything.
The genie may be out of the bottle for future tax initiatives, though. If there's a precedent set to hold a province-wide referendum to convert PST to HST, should there be referendums on increases to personal or corporate tax rates as well?
Fifth, if you're going to hold a referendum on something as important to the future of the province as the HST, then you, as the government of the day, ought to have taken charge of the question. The question, drawn up by Elections BC, was a disaster. It should have read: "Are you in favour of keeping the HST, and keeping the $1.6-billion the federal government paid the province for transition costs, and the increased rebates paid to pensioners and the poor," or "Are you in favour of scrapping the HST, eliminating the extra rebates paid to pensioners and the poor, and increasing other taxes to repay the federal government the $1.6-billion it paid B.C. in transition costs?"
Do those questions look political? You bet. But anyone that doesn't think tax policy isn't political is kidding themselves.
Sixth, if you're going to have a referendum on something you believe in, a simple majority of 50 per cent plus one of all voters is too low a threshold to win it. Why the government chose to go that route when it had the power to use the super-majority requirements under the Recall and Initiative Act suggests it didn't have its heart in it. The government played to lose.
Said one on-line commentator to this newspaper: this is "a sad day evidencing the 'dumbing down' of the electorate who have voted out Campbell without realizing he's already gone. The issue isn't Campbell, and the decision is stupid by both the voters and the government to allow a referendum."
So what's likely to happen now? I really don't know, but I do know that governments defeat themselves and it will be difficult for voters who would ordinarily have voted for the B.C. Liberals to forgive and forget this profound cock-up that will cost the province, its citizens, and its businesses, billions of dollars.
They used to say only Nixon could go to China. Perhaps only the NDP can resurrect the HST. Mr. Dix is on the record as opposing the HST because it increased taxes for working families. But that may just be politics. Centre For Policy Alternatives economist Iglika Ivanova has said "as an economist, I agree that value-added taxation is an improvement over the current retail sales tax system used in both B.C. and Ontario."
So VAT taxes have some support on the left.
Leaving aside the issue of what working families will do if the businesses that employ them move to Alberta or Ontario, I'm hoping that Mr. Dix – should he win the next election – takes a page out of Jean Chrétien's playbook, tones down the class warfare shtick, and realizes that without a value added tax such as the HST (or in Mr. Chrétien's case, the GST), there will not be sufficient revenues generated by personal or corporate income taxes to fund health care, teachers' salaries, the justice system and the other social programs near and dear to all British Columbians (and certainly to New Democrats).
High personal and corporate income-tax rates tend to drive businesses and business people elsewhere, killing the goose that pays for the golden eggs that fund our social programs. Social democratic political parties all over Europe have realized how important VATs are to fund social programs. Why is British Columbia any different?
Perhaps the only hope for a VAT type of sales tax in the next decade is with the NDP, which could be stuck finding a way to repay the federal government a lot of money after the next election.
Maybe the party will work out a deal with Ottawa and call it … the PST.
This article has been corrected from an earlier version.
Special to The Globe and Mail
Tony Wilson is a franchise and intellectual property lawyer at Boughton in Vancouver, and he is an adjunct professor at Simon Fraser University. His newest book, Manage Your Online Reputation, was published in November.
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Tony Wilson