November 26, 2009

Campbell's HST Debate with James

The Gord giveth and the Gord taketh away: "Let me reiterate that during the election campaign we had no intention of dealing with the HST… There's no question that the HST is going to strengthen our economy. One of the things that we were clear about during the campaign is that we had every intention to strengthen our economy as it came out of this economic downturn."

Hansard, November 25, 2009

In case you missed it, you were supposed to read Gordon Campbell's mind and understand that when he said he would "strengthen our economy" he meant that he would introduce the HST even though he said he wouldn't do that.

It is much easier to read Hansard, the record of legislative debates, than it is to have actually watched the debate between Campbell and James and between NDP Finance Critic Bruce Ralston and Finance Minster Colin Hansen. In real time you could run a stop watch, as I sometimes did, and see a 4 or 5 minute wait between the time a question was asked and an answer was given. It is customary in the BC legislature for ministers to consult their officials before responding during "estimates debate", but the periods of silence during the debate over the difference between what was said before and after the election are precedent setting - the maximum $495 million deficit before and the $2.5 billion deficit after, no HST before and HST after. How long can it take to say: "yes I lied"? Of course, the questions and answers were never so simple due to parliamentary rules.

The HST debate between Ralston and Hansen was interesting because Ralston showed all his skills as a lawyer interrogating a witness, while Hansen showed all his skills as a politician in evading an answer. In "Committee A" on the afternoon of November 23rd, Ralston said:

"I'm taking it that, of the $5 billion in PST that's presently paid, $1.9 billion of that will no longer be paid by business, leaving approximately $3 billion based on the current PST tax base."

"It looks like there's an additional $3.5 billion required to get up to the number that's referred to in table 3 from the HST. You started with the provincial PST. You take the $1.9 billion to business out of that. That's what you're left with. You have to raise $3.5 billion more. Where does that come from?"

Ralston spent over an hour exploring that question from different perspectives and at no point did Hansen provide a direct answer; however, in reference to the $1.9 billion Hansen said:

"The same taxpayer that pays the $1.9 billion today is ultimately going to be paying under the HST system, and that is the consumer. The $1.9 billion that gets charged in PST throughout the value chain gets built into the costs of goods and services."

"While it may not be apparent to the consumer as to how much PST is embedded in the retail price of goods and services that they are buying, that is in fact part of the ultimate selling price of those goods and services. So those costs come out, and as I said before, all other things being equal, goods that are currently subject to PST in British Columbia will be less expensive in the future than they otherwise would be. Some goods - goods currently subject to PST today - even with the HST applied to them will, in fact, be less than they otherwise would be two years from today. "

"Then there are other goods which are not currently subject to PST today but only GST that will, in fact, be slightly more expensive to consumers at the end of the day."

"The bottom line is there's a broader tax base, but it is the consumer that pays the price of PST today, and it is the consumer that will continue to pay under the harmonized sales tax system."

In other words, Hansen admitted that the corporate savings will be passed on to consumers, but he argued that they pay the tax now though higher prices which he believes will be reduced with the HST. The problem with that argument is that Hansen and Campbell argue that the primary beneficiaries of the HST will be forestry, mining and construction; most BC families don't buy a lot from those industries, so they can't benefit from any price changes in those industries.

On November 25th, when it came Carole James' turn to debate Premier Campbell on the HST, the Committee Chair tried to interfere in the debate with advice that the matter had been canvassed in the Finance Minister's estimates. Occasionally Campbell used that cloak but he couldn't help himself from saying that the HST: "… is the single most important thing that we have been informed by leading economists across the country that we can do to strengthen the economy, to strengthen investment, to encourage job creation, to make us more productive and more competitive." Isn't it surprising that Campbell didn't say that before the election, just to make his promises to strengthen the economy perfectly clear? Imagine what the election outcome might have been if instead of those warm chats showing the Premier offering deep concern, the ads instead said: "Vote Campbell if you want the HST"!

Is it true that implementing the HST is the most important thing that can be done to strengthen BC's economy? It is clear that implementing the HST will hurt restaurants (France lowered its tax on restaurants last July to stimulate growth), tourism and new home development. When asked for studies made prior to the decision to implement the HST, Campbell referred to lobbying done by industries that might benefit from the tax shift, but he refused to provide any studies on the impact on other industries. He quoted his Finance Minister as saying: "The more that we can do to stimulate the economy, create jobs, make sure people are working, it will provide more disposable income that people can use for the occasional restaurant meal out." The HST doesn't just apply to "the occasional restaurant meal out"; it applies to working people's daily lunch, to coffee shops, to food fairs and to greasy-spoons. It is an insult to British Columbians when the Premier and his Minister hide from the truth.

It is difficult, if not impossible, to find economic studies that support, or refute, Campbell's claim about the HST (and other value added taxes (VATs)). In Canada, New Brunswick, Newfoundland and Labrador and Nova Scotia adopted the HST in 1997, but Newfoundland and Labrador and Nova Scotia subsequently benefited from significant offshore oil and gas development. It would be foolish to attribute their economic status to sales tax harmonization rather than oil and gas riches. So how does economic growth in New Brunswick since 1997 compare to British Columbia's?

Between 1997 and 2008 New Brunswick led BC in economic growth in 1998, 1999, 2001, and 2003; four out of eleven years. What about Newfoundland and Labrador and Nova Scotia? Between 1997 and 2008, Newfoundland and Labrador led BC in all years except 2004. Between 1997 and 2008, Nova Scotia led BC in 1998, 1999, 2001, 2002, 2003 and 2008 - six of eleven years.

It appears that oil riches have much more to do with economic growth than does harmonization of the sales tax, but that won't stop Gordon Campbell from handing $1.9 billion per year in tax benefits to the financial backers of his party at a cost to BC families. When asked for evidence, Campbell simply says the HST will produce growth and any proof of that is a cabinet confidentiality.