In Canada, where the federal government foolishly cut the GST to five per cent from seven per cent, and in the process weakened its finances, squandered its surplus and reduced its options just as the country was heading into the worst downturn in decades, economists are suggesting it would be better to increase the tax now in order to reduce the deficit.Now, one can make the argument that the editorial never quite goes so far as to directly claim that harmonization itself will reduce the province's deficit. But considering that the need to deal with a provincial deficit is repeatedly cited as an argument in favour of harmonization - and chopping program spending listed as the alternative - it's hard to reach any conclusion other than that the Star-Phoenix editorial board is trying to get Saskatchewanians to believe that harmonization would reduce the provincial deficit.
Roger Martin, dean of the Rotman School of Management at the University of Toronto, is warning that, without increasing consumption taxes, Canadians could face the kind of destructive cuts to education and innovation that took place in the 1990s.
Adopting the HST rather than resorting to the "big chopping exercise" on program spending resorted to in the past, is Ontario and B.C.'s best chance to continue reducing the prosperity gap with the U.S., Mr. Martin says in his report, Navigating Through the Recovery.
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But if creating jobs, tackling deficits, competing with 130 other nations that have such a tax or increasing personal wealth isn't enough reason to convince governments and citizens to adopt a harmonized tax, perhaps one should consider Mark Carney's dilemma.
Which, needless to say, is absolute nonsense.
The usual operating premise of harmonization has been that the combination of tax increases on consumers and reductions on business - in the absence of any measures to compensate for the higher consumer costs - roughly evens out (i.e. is "revenue neutral"). Which would seem to be an easy enough theory to test if the governments involved had actually let people know what the impact of the policy would be before ramming it down their throats.
Curiously enough, though, neither B.C. nor Ontario seems to have actually provided any public estimates to show whether that's true: while the amounts of the corporate reductions and compensatory measures have been thrown around at every opportunity, I haven't seen any actual dollar amount placed on the cost to consumers of paying HST on a broader set of items by the governments who are imposing that change. And that should itself serve as a signal of just how little chance that would be of the policy surviving if people actually had full information about it.
Fortunately, at least one government has now offered up a simple, accurate set of estimates (warning: PDF) as to what harmonization would mean. And in Manitoba, the result would be $134 million less annual revenue for the provincial government based on harmonization. (Or $105 million looking only at the impact on consumers and businesses - which is probably the fair number to use given the discussion about different levels of government below.)
Put in terms that even somebody who gives John Gormley regular column space can understand: harmonization makes deficits worse. And that's before a province even lifts a finger to try to mitigate the regressive effects of the tax on individuals.
Granted, the federal money being offered as a bribe to encourage harmonization would paper over that gap: in Manitoba's case, it would cover a little over two years' worth of lost revenue. But it's not as if that money is ultimately free either. In effect, the Star-Phoenix is encouraging the federal government to carry a deeper deficit in the near term, in order to pay off the province to agree to go into deeper deficits in the medium and long term. And all in the name of fiscal responsibility and deficit reduction.
Moreover, all of the above applies even without the province doing anything at all to try to mitigate the effects of increased taxes on individuals. And if the Star-Phoenix thinks that the governments in B.C. and Ontario have had trouble trying to sell the tax while being able to point to factors which could even out some of the damage, just wait to see what would happen if the tax were introduced without even a pretense of concern for the people affected.
Before I close out this post, the deficit claim looks to me to be both the biggest whopper in the editorial. But there's no lack of other claims which are equally easily debunked, including such gems as:
(P)oliticians from all major parties...promoted the shift.Quick, name one from the NDP - which obviously has to be included for the wording to be "all" rather than "both". Yeah, didn't think so.
In the next decade, the change is expected to create almost 600,000 new jobs in Ontario alone that wouldn't exist under the current regime.Asked and answered.
Roger Martin, dean of the Rotman School of Management at the University of Toronto, is warning that, without increasing consumption taxes, Canadians could face the kind of destructive cuts to education and innovation that took place in the 1990s.Included above, but let's address it on another front. If the goal is to increase income by raising consumption taxes, why on earth would that be done by eliminating consumption taxes on the entire corporate sector?
In sum, then, the Sask Party's mismanagement isn't a reason to bring in a harmonized sales tax. And the fact that the Star-Phoenix is so eager to present the HST as a solution to a problem which it would only exacerbate - while being so shamelessly off base in so much of the rest of its argument - should offer reason to be skeptical about anything it says on the topic in the future.
(Edit: fixed typo.)
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