Monday, May 03, 2010

Campbell's Supply-Side Follies--and a Face-Saving Proposal

If there has been one serious flaw in the record of the Campbell government, it is that it will not give up on supply-side economics. From its very first move–the 2001 20% tax cut that was supposed to pay for itself, but which wound up creating the largest deficit in history–to the carbon tax (which benefits the affluent Vancouverite rather more than other groups)to the HST tax shift, they have refused to heed either public opinion or the economic evidence. They have been loyal to their core constituency, however: the business and professional elite fo Greater Vancouver, who by and large feel that their private gains have outweighed the public’s losses.

Now that the NDP is pulling ahead in the polls, and even former Finance minister Carole Taylor has had the good sense to distance herself from these large tax increases on ordinary consumers, it is time for the Campbell Liberals to consider how they might soften the regressive nature of their policies, while still hanging on to the conceptual virtues of both the HST and the carbon tax. I have two specific suggestions:

1. Lower the HST 1%-2%---with the lost revenue made up by corporate and personal income taxes.

2. Adopt the Canadian Centre for Policy Alternatives proposal to modify the incidence of the Carbon tax, viz. the low-income credit, at minimum, should be increased in line with carbon tax revenues, and ideally its share should be increased to half of revenues. The remaining half of carbon tax revenues should provide funds for other climate actions.

Even if the loss of revenue from reducing the HST (and the corresponding hike in income taxes) is too great to permit the adoption this prescription, one could always narrow some exemptions in order to lower the overall rate or broaden some other exemptions at the current rate, or target subsidies to the poor, etc.  My general point is, I think still valid: that there a number of ways of dealing with the equity issues raised by the HST and the Carbon tax, short of  abolishing these taxes altogether.

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