Monday, August 01, 2011
How Should I Vote on the HST? A Very Good Question
Back in the day when I was still a teenager, I came across works by economist Albert Hirschman and philosopher John Rawls recommending expenditure taxes as a way of reducing the trade-offs between equity and efficiency by encouraging savings and investment. An inveterate policy wonk, I then studied the issue and began advocating a VAT for Canada--about 5 years before Brian Mulroney proposed the GST. The fact that France and Sweden had two of the more egalitarian societies on Earth while collecting nearly half of their revenue from the VAT suggested that the "regressivity" of expenditure taxes (i.e. the fact that they hurt low incomes relatively more than high incomes, since the former must spend more of their income) was not dispositive. Exemptions for basic food clothing and shelter were all that was needed to preserve a measure of social justice. The promotion of saving and investment by all income groups would be good for jobs.
Accordingly, supporting the latest version of the expenditure tax for British Columbia should be a no-brainer. A single lower tax rate of 10% over a broader range of goods is more efficient administratively as well as economically. It is easier for everyone to have a single simple tax that is easily calculated in our heads. The inherent regressivity of expenditure taxes can be offset by the improved economic trade-offs and ameliorated by exemptions on basic food, clothing, and shelter.
The problem has been the BC government's amazing ability to turn a good idea into a bad one. This stemmed from the Campbell Liberals' basic attitude: that it was important to listen carefully to big business, but everyone else's opinion was to be "managed". The successful infliction of pain in the 2001-2003 "New Era" cutbacks --which meant that voters could be made to forget in time for the next election--clearly taught Gordon to go early with the plan and to count on peoples' short memories. The successful selling of the carbon tax--a revenue neutral exercise that swapped carbon taxes for income tax cuts-- had enabled the Liberals to get away with a risky policy that no one else in North America had dared to try. These two precedents clearly guided Campbell's reasoning about the substance and timing of the HST, which turned out to be disastrously ill-conceived, ill-timed and poorly explained. No doubt he was also panicked by the need to remedy his embarrassingly large budget deficit, at least 3 times as big as he had maintained during the 2009 election.
The difficulty lay in Campbell's obliviousness and/or indifference to other features of the political context that made his version of the HST politically suicidal:
First, by using it initially as a revenue grab by extending the 12% (5% GST plus 7% PST) tax to a wider range of goods and services.
Second, by using that revenue to pay for corporate tax cuts--making the sales tax even more regressive, instead of less regressive; albeit under the cover of pseudo-justice rhetoric about "revenue neutrality".
Third, by not revealing any interest in the concept during the 2009 election campaign, and then bringing the HST in suspiciously soon afterwards.
Fourth, by introducing this regressive tax shift ($1.8 billion worth) just as the province was sliding into the worst recession in 75 years. (Deep recessions are normally the best time to reduce the tax burdens of lower income groups, not to raise them.)
Fifth, by persisting with an Orwellian referendum question in which yes to The HST means voting "no" and saying no means "yes".
Sixth, after a huge political cock-up caused by the government's inability to trust the voters, and after gouging small businesses for over a year, and forcing small businesses to change their accounting and computing systems twice, the government is now asking the voters to trust it to bring in the lower 10% rate in three years , after the next election.
SO, should you hold your nose and vote "No" for the 10% HST on the grounds that that was always the best policy? Or "Yes" on the grounds that the government has obviously not earned your trust, and that to do otherwise is to reinforce and validate bad behaviour?
Let's just say that I am glad to be in Edmonton, sitting this one out.