TAX NEWS - June 2010
HST: Why so mellow, Ontario? Why so bugged, B.C.?
While the implementation of a harmonized federal and provincial sales tax in B.C. erupts into mass protests, Ontario is expected to remain characteristically placid.
"Ontario Whimpers as BC Spurns HST" writes an anti-tax crusader in the National Post.
"BC shrieks, Ontario shrugs" notes the Toronto Star.
Why is it that the HST is turning B.C. politics on its ear, while in Ontario it was been a relatively low-key change?
1. Historic factors
B.C. is simply more anti-establishment than Ontario, in part due to geography and history.
The mining- and forestry-driven resource economy of British Columbia created a bosses-versus-workers political economy with strong unions, and a strong middle-class backlash against them. Both segments feel like the aggrieved "little guy" in the system. In contrast, Ontario's political economy was born in farming and light industries. Unions are weaker, and the middle class less polarized.
Like most jurisdictions west of the continental divide, populism runs stronger than in the East. For instance, in B.C. recall and initiative legislation passed after a 1991 referendum. No such laws are on the books in Ontario, nor does there appear to be demand to implement them.
Finally, B.C. is thousands of kilometres and a chain of mountains from the national capital, with all the alienation that remoteness conjures. Ontario is home to the nation's capital, to Canada's largest city and it is the single most populous jurisdiction.
2. Opposition sincerity
A second great factor is the political ability of the opponents of the HST.
In B.C., the crusade against tax reform is led by Bill Vander Zalm, the former Social Credit premier. Mr. Vander Zalm is a high-voltage personality with charisma. His entry into the debate was startling to the political establishment and destabilizing to the broad right-of-centre Liberal coalition filled with former SoCred supporters.
Critically, Mr. Vander Zalm is not running for office. He has no pressure to balance the books, or provide a superior tax regime, or explain how he would repay federal transfers. Instead, he can smile and laugh and return to the attack, leaving the intellectual heavy lifting to others while sticking to his critique of the HST.
In Ontario, the campaign against the HST is championed by PC opposition leader Tim Hudak. While the political upside of campaigning against a sales tax are obvious, Mr. Hudak fails to provide an alternative position.
PC sources say Hudak's reluctance to take a stand on the HST is because he "sees the merit in taxing consumption instead of income to spark productivity."
This manufactured outrage from the opposition leader has resulted in a wishy-washy reaction from the public, compared to the obvious sincerity of Mr. Vander Zalm.
3. TIming factors
The factor most analysts finger is the timing of the B.C. election campaign.
Gordon Campbell has "been ruined not so much by 12% HST dread, and the looming tax's wide application on goods and services, but the way it was suddenly introduced — days after last year's provincial election, after his government had said in the election campaign it was not under consideration."
In contrast, Dalton McGuinty introduced the HST well after the election and in reaction to a rapidly worsening global economy. Things had changed since he last went to the polls, and most voters intuitively grasped that fact.
The Ontario Liberals widely consulted with business and consumers prior to the introduction of the tax in 2009, and the biggest surprise was that they had the courage to take on the challenge.
4. Federal transition fund
While the actual process of harmonizing the sales taxes in the two provinces is essentially the same, one difference is how each province chose to use the transition funding from the federal government.
B.C. invested their federal money in providing a point-of-sale exemption on gasoline. This was absolutely critical politically given the Carbon Tax BC adopted only a few short years before.
In contrast, Ontario will be transferring the proceeds directly to the people in the form of rebate cheques.
B.C. actually used the popular rebate cheque method a few years ago to take the sting out of the Carbon Tax itself, but had to chose the targeted approach with gasoline this time.
While the efficacy of each transition structure is yet to be tested by the actual introduction of the program, the positive Ontario approach – "here's the cheque, now you decide how to use it" – will likely prove more effective than the BC apologist method – "well, at least we didn't put the HST on gasoline."
5.Campbell legacy vs. McGuinty reboot
One major difference between the two provinces is the current stage of each Premier in the politician lifecycle.
Gordon Campbell has been at the forefront of B.C. politics since his election as Vancouver mayor in 1986. Dalton McGuinty has been in the spotlight a decade less.
Mr. Campbell was just elected to his third and likely final term. Mr. McGuinty is gearing up to seek a third mandate.
The sales pitch from Mr. Campbell has been a bit flaccid, and he has taken on much of the blame for the tax personally.
Mr. McGuinty has placed more of his team around the sales job on the tax reform: Finance Minister Dwight Duncan and Revenue Minister John Wilkinson especially.
It may be the case that Mr. Campbell sees securing the important job creation measure as his legacy, and as his final act as leader.
By stepping down after its passage, but well ahead of the next election, he would likely take with him the core of the rage against the HST, and he leaves his party enough time to reconstitute their coalition before an election.
In contrast, Mr. McGuinty clearly sees the HST as a critical piece of his reelection campaign. His opponent's support for the concept of shifting tax to consumption leaves the PC Party vulnerable on the issue, while a rapidly improving Ontario economy gives him a chance to point to the HST as a key tool in that recovery.
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