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April 7, 2010

Anti-HST and California's Proposition 13

Two wrongs don't make a right, but Bill Vander Zalm's anti-HST petition may prove that rule wrong. (See Bill Tieleman's article in the April 6th Tyee for the best summary I have seen on why the HST should be rejected.)

Vander Zalm is known for destroying the Social Credit Party, building a reputation on the backs of those on welfare (give them a shovel lapel pins), and putting his opposition to a woman's right to choose ahead of the will of the public. Nevertheless, the Zalm has always had a strong following and he has united that following with others who feel lied to following the 2009 election.

It is clear that one wrong is the HST; the second wrong is government by referendum. I was a member of the Legislative Committee that held hearings that ultimately resulted in the Recall and Initiative Act and its onerous requirements. That legislation was drafted following the US Supreme Court's validation of California's Proposition 13, a citizen initiated referendum that capped the tax rate for real estate, resulting in real estate distortions and devastation of funding for public education. In the early 1990s there were very good reasons to be concerned about initiatives like Proposition 13.

It is not just that the HST is bad, but it is also a case of misrepresentation. In a virtually unprecedented case of betrayal, the BC Liberals said one thing during the election campaign, and did the exact opposite just weeks later. Perhaps that is why the Zalm's threat to launch a recall campaign against Premier Campbell appeals across the political spectrum, including to disillusioned BC Liberals.

Finance Minister Colin Hansen was put to the test when he was asked, on the eve of anti-HST petition campaign, to respond to Vander Zalm's rally in Campbell's riding. The best Hansen could do was to say that many countries have a value added tax and that a tax economist they hired claimed that after ten years there would be job and investment gains.

Beneath the confusion lurks two answers: 1) it rakes in more money than alternative taxes, and 2) it doesn't distort relative prices. Of course, no government is going to champion the HST on the basis that it will pick your pocket deeper and quicker, so they don't mention the first reason. As for the second reason, it contradicts everything that governments have tried to do for years with the sales tax, i.e. give tax breaks to encourage certain types of behavior such as saving energy. The HST eliminates those incentives, although it doesn't eliminate all price distortions, hence it is still what economists call "second best" and not subject to proof that it delivers any sort of optimum resource allocation. Support from economists for value added taxes, including the HST, is based on political beliefs, not on evidence.

Vander Zalm's anti-HST petition is the exception that proves the rule. Of course, no one likes a tax. Of course, signatures could be gathered against any tax. What makes the HST different is 1) the Campbell government said it wouldn't do it, and 2) there is no evidence that it will yield any of the benefits claimed by those who were suddenly converted after the May 2009 election.

If the HST is the best thing that can be done for the economy, why wasn't it the best thing that could be done for the economy before July 2009? The HST will shift $2 billion from businesses to BC families. Carole James, Bill Vander Zalm, Chris Delaney, Bill Tieleman and many other British Columbians have it right: the HST is wrong; it is a betrayal, and it must be stopped.