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August 28, 2010

HST Committee to Meet Sept 8

At 1 PM on Wednesday, September 8th, the Select Standing Committee on Legislative Initiatives will meet for the first time since it was created 14 years ago. The current committee will initially be convened by Terry Lake, Liberal MLA for Kamloops-North Thompson. The first thing the committee will do will be to elect Lake chair of the committee. The six Liberals and four New Democrats will then have a maximum of 90 days to either recommend that the draft bill that accompanied the anti-HST petition be introduced to the legislature at the earliest practical opportunity or that the petition and bill be referred to the Chief Electoral Officer for an initiative vote on the last Saturday in September 2011.

Section 15 of the Recall and Initiative Act sets out onerous criteria for an initiative vote to succeed: a double majority consisting of more than 50% of the total number of registered voters in British Columbia plus more than 50% of the registered number of voters for each of at least 2/3 of the province's 85 electoral districts. If 80% of those voting in such a referendum voted against the HST, it would take a voter turnout of almost 63% in order to meet those criteria, slightly more than the 62.4% who voted in 2005, but less than the percentage who voted in the five elections prior to that.

If a September 2011 initiative vote succeeded in satisfying the double majority criteria, Section 16 of the Act requires the Bill to be introduced to the legislature at the earliest practicable opportunity. In other words, the consequence would be the same as if Lake's committee did the right thing in the first place and simply referred the bill to the legislature. Of course the difference would be that after a successful referendum voters would be even angrier and the issue would have received the benefit of an intense campaign. Alternatively, a majority of those who vote in such a referendum could reject the HST, but it could still fail by not meeting the stringent double majority criteria. That would be just what the Liberals need to recover their popularity - not.

The longer it takes Lake's committee to do what the Premier's officer has probably instructed its Liberal majority to do, the more evidence builds on the negative consequences of the HST. On August 3rd the Canadian Food and Restaurant Association released a survey of its members which reported a 10 per cent decline in sales in July compared to the same period last year. Association president and CEO Garth Whyte said there is no question the HST is hurting BC restaurants of all types. Supporters of the HST claimed the survey was self-serving since the Association opposed the HST since its members were hit by the surprise announcement in July 2009; however, both sides in the HST debate can look to Statistics Canada the last week of September when it will release figures for food sales in restaurants in July. Every month thereafter the data will be updated so we can see whether the food industry's prediction of a $750 million loss in business proves true; ironically, Statistics Canada gets the food sales data from GST/HST tax remittances.

On August 16 the Canadian Real Estate Association (CREA) put out a news release headlined: "BC and Ontario housing markets feel effects of HST in July". According to CREA, "Declines in British Columbia (-14.1 per cent) and Ontario (-8 per cent) accounted for 85 per cent of the change in national activity in July." Defenders of the HST were quick to point out that the HST doesn't apply to sales of existing housing, only to sales of new housing. Everyone agreed that the tax created confusion in the market

On August 20th Statistics Canada released the July consumer price index and stated: "Consumer prices were affected by changes in consumption taxes in Nova Scotia, Ontario, and British Columbia." In particular, Ontario (2.9%), BC (2.0%) and Nova Scotia (1.7%) had the highest rates of inflation in Canada thanks to the HST.

The Labour Force Survey comes out monthly but it is based on a sample taken during the second week of each month; the August survey will be released September 10th based on interviews conducted during the week of August 9th, hence it is the first measure after a full month of the HST. It will report employment by industry, including the industry titled "accommodation and food services". If layoffs are occurring as a result of the HST, they will first show up in those statistics. I would expect it would take several months before changes are seen. Whether it is employment in accommodation and food services, food sales in restaurants or the CPI, key monthly indicators will be a continual source of disappointment for HST boosters. Supporters of the tax claim long term, 10 year, benefits which will be virtually impossible to measure against other changes in the economy. For example, data on gross business capital formation in machinery and equipment are part of the provincial gross domestic product series that only comes out on an annual basis and is subject to much bigger influences than changes in the sales tax. The negative consequences of the tax are immediate and obvious, while any positive consequences are subtle and slow to occur.

The longer Campbell waits to introduce the anti-HST bill to the legislature, the stronger the evidence will be on the negative impacts of the tax. Of course, few expect anything to happen if the bill is introduced in the legislature. Ultimately this is a political process about holding the government to account for misleading the public in the May 2009 election. It could take years to unravel the mess that was created when the PST was replaced with the HST; it might not be possible to do anything but mitigate the worst of the damage caused by the tax.