Burned by B.C.’s Toxic HST Debate

“The fact that the Clark government’s Frankenstein HST hybrid will significantly reduce provincial sales tax revenue at a time when public services are already under intense fiscal pressure is a powerful and principled reason to throw the whole package out in the referendum, and start the debate from scratch.”

I may live in Ontario, but I know enough about B.C. politics to know that you have to be very careful what you step into.  That’s why I tried to steer clear of any public comment about the debate over the B.C. HST that’s been raging out there.

So I was very surprised when my ears started ringing, from the other side of the Rockies, a couple of weeks ago.  My phone started ringing, too, with people calling to ask why on earth I had endorsed the HST.

I’ve never endorsed the HST.  That claim, made by business-funded HST advocates in B.C. trying to drive a wedge between unions in B.C. and in Ontario, is blatantly false.

It all started when David Robertson, who is a spokesperson for the Smart Tax Alliance, started reading aloud on the radio from some personal e-mails that he and I had exchanged back in 2006 – long before the idea of the HST was ever sprung on an unsuspecting public by Gordon Campbell.

[Don’t confuse this David Robertson with my recently retired colleague at CAW David Robertson.  That David Robertson is a fine person and Canada’s greatest union expert on work organization issues.]

My e-mail exchange with Robertson started after he and I met at a policy conference.  He wrote me afterwards to ask if the CAW would join a coalition of groups lobbying for a harmonized tax in Ontario.  I turned down his request.

A couple of weeks ago, Mr. Robertson quoted selectively from those e-mails on CKNW radio to make it sound like I was endorsing the HST.

I called him on June 23, not even remembering that we had met before, and asked him where on earth he got these quotes.  When I learned he was quoting from 5-year-old personal e-mails, written in an entirely different context, I was furious.  I told him I thought it was highly unethical to read from 5-year-old personal e-mails on a radio show.  I also informed him that neither I nor the CAW had ever endorsed the account HST in either Ontario or BC, and asked him to stop saying those things.  I wrote to CKNW (and their pro-HST commentator Michael Campbell, in particular, who was repeating Robertson’s false claims) to inform them of the falsehood.

Now this week, Robertson’s group, the Smart Tax Alliance, found a scanned copy of an internal memo I wrote in 2009 to our local union leaders in Ontario.  I don’t know where they got it – they won’t tell me.  It was an internal CAW memo, we didn’t publish it.  The Smart Tax Alliance’s PR director told me on the phone it was delivered to them by someone who found it on the web, but would not divulge who sent it to them.  (You get three guesses, and the first two don’t count.)  And Mr. Robertson’s claim that it has now mysteriously disappeared from the CAW website is false; it was never there.  The Smart Tax Alliance posted it on their site, and it’s now the most famous (infamous?) internal memo I ever wrote!  Never mind the silly cloak-and-dagger: I definitely wrote the memo, it was intended internally for our Ontario leaders, but now it’s out there.  Whatever.

In the memo, I explain to our leaders in Ontario how the HST works, some of the benefits of the value-added tax model, but also some of the costs of the Ontario proposal: like the fact that the tax is now applied to new sectors of the economy that were exempt from the former PST, and the fact that sales taxes in general are regressive.  The memo concludes that the most progressive tax policy would be to abolish sales taxes altogether, and replace the lost revenue with higher personal and corporate incomes taxes (a policy option which, obviously, would face its own policy challenges).

Most importantly, the memo is explicit that the CAW did not endorse the HST in Ontario, nor did we condemn it.  It was also explicit that its analysis did not apply to B.C., given the big differences between the provinces.  The main point of my memo was to discourage our activists here from jumping on board any anti-HST bandwagon in this province.

Quoting selectively again from my memo, the Smart Tax Alliance, Mr. Robertson, and other HST proponents in B.C. (including Tony Wilson in an on-line commentary) falsely claimed that I and the CAW support the HST.  This is a blatantly false claim.  The Smart Tax Alliance and Tony Wilson both corrected their errors and withdrew that claim from their respective on-line commentaries.  I’m not sure about Mr. Robertson; he was still claiming that the CAW supported the HST later this week, even though he was personally informed weeks ago that neither I nor CAW have endorsed the HST anywhere.

In 20 years of life as a public economist, where as most of you know I’ve engaged in all kinds of often heated debates, I have never experienced such unprofessional and unethical behaviour from a debating opponent.

My recommendation to our Ontario leaders to stay out of the HST fray here was motivated as much by political reasons, as economic ones.  In Ontario, the anti-HST movement was very much tied up with an anti-government, anti-tax message.  Our view was that movement would ultimately do more harm than good.  For the most part, the labour movement in Ontario stayed away from the HST, and the protests here were pretty small and short-lived anyway.

At any rate, when I write an internal memo listing costs and benefits of a certain policy, you can hardly conclude that I or my organization have endorsed that policy.  That’s nonsense.  And at any rate, I don’t determine CAW policy anyway. I give advice.  It’s our elected leaders who set policy.  If I write an internal memo saying I think the CAW should use pink toilet paper, and it somehow gets posted on the web, that doesn’t imply that the CAW has a policy in favour of pink toilet paper.

In B.C., where the HST proposal itself is different, where the economy is different, and where the politics are (very) different, the labour movement (including the CAW locals in B.C.) have been actively engaged in the fight to reject the Liberal government’s revised HST proposal in the current referendum (this means, perversely, voting “YES”).

The B.C. labour movement’s opposition to the HST has been carefully framed in the context of a broader demand to restructure the provincial tax system on a more progressive basis.  The debate is thus much bigger than “HST or PST.”  It’s about the whole question of how to fund first-class public services, with a system of fair and efficient taxes.

I don’t see a contradiction between that approach, and what our union decided in Ontario, because of the many differences between the policy, the economy, and the politics of the two provinces.  In fact, the two positions are motivated by the same ultimate goal: solidifying the fiscal base of first-class public services.

One big difference between Ontario and B.C. is the relative importance in the two provinces of manufacturing vs. resources.  It is in manufacturing that the problem of “cascading” – a tax on a tax – is most severe because of the more intensive and complex supply chain that inputs to the sector.  This is not such an issue in resources (where value-added in the sector is a much higher share of total revenues).

Moreover, there’s an important issue about how companies will respond to the money they save with an HST, especially in exports.  In manufacturing, producers compete on price – so savings on input tax credits could make a difference to prices and hence to the volume of exports (and resulting employment).  In resources, however, prices are generally set by world commodities markets.  In that case, cost savings the company enjoys will not affect prices or volumes; they will likely show up as bigger profits.

Another important sectoral difference is the hospitality sector.  In Ontario, the hospitality & restaurant sector already paid PST, so the HST wasn’t a big shock. In B.C., it will face provincial sales taxes for the first time.  (Full disclosure: the CAW represents many hospitality workers in B.C., so that’s an important issue for us.)  In contrast, the main new sector that was hit by the HST in Ontario was home heating; the government brought in a temporary rebate that slightly more than offsets those higher costs (for a while, anyway).

In terms of overall fiscal impact, the biggest concern in my mind about the Clark government’s revised HST proposal is that it will significantly reduce the total revenues collected form the provincial sales tax.  Why?  In a desperate attempt to salvage the policy, the government’s proposal would cut the rate by 2 points (cutting the provincial portion from 7% to 5%).  If our main concern (as I suggested) is fighting to preserve the fiscal basis for public programs during an era of austerity, then the B.C. HST will do the exact opposite.

I suspect that the controversy in B.C. largely stems from the process by which the policy was introduced and handled.  The Campbell government sprang the HST on the public, after promising not to.  The resulting outrage was enormous and understandable.  Now the Clark government has fiddled with their plan, trying to bribe the voters with their own money by cutting the rate, and throwing in some other face-saving trinkets.  The B.C. vote is thus not a referendum on HST vs. PST; it’s referendum on the direction of overall tax policy, and the economic and political credibility of the government itself.

After all, the sales tax is just one piece of a bigger, ultimate question of the structure of our overall tax system.  You can’t think about the HST, without looking at what’s happening to the rest of the tax system.  What we’re ultimately concerned with is how we collect the taxes we need to pay for great public services, in a manner that is both fair and economically efficient.

The B.C. office of the CCPA has made that point very effectively, with a powerful new study that documents the overwhelmingly regressive impact of cumulative tax changes there in recent years.  The lowest income quintile in the province now pays 14-15% of their income in total provincial taxes, while the highest income quintile pays just 11%.  The HST is a small piece of that problem; cuts to progressive personal and corporate income taxes have been the main culprits.  But widespread populist anger about the injustice of the tax burden has surely played into populist anti-HST sentiment.  And for that reason the HST debate can’t be separated from the bigger issue.  To that end, the B.C. Federation of Labour’s effort to clearly link its fight against the HST to its broader fight for fair taxes is important and bang-on.

I think my full analysis of the HST debate in Ontario is reasonable and nuanced, and I stand by everything I said in it (repeating the strong and explicit proviso that it applies only to Ontario, and not to B.C.).  We could have a healthy and honest dialogue on the left about the HST and all the issues associated with it.  I am not the only person on the left to be cautious about the politics of campaigning against the HST; Hugh Mackenzie and Matt Fodor have raised similar points.  On the other hand, many good people on the left, like our own Erin Weir, have been strong and clear in opposing the HST.  (Erin buddy, you’d be a very popular guy out in B.C. right now if the ITUC could find their way to deliver you there in the near future!)

But with propogandists like Mr. Robertson on the prowl, there’s no room for healthy and honest dialogue.  Don’t ever write a policy brief that lists the pros and cons of any issue; folks like Robertson will come along, cite only the points he likes, and then sign you up as an endorser of his position.  It’s a shameful way of working, that does immense disservice to the honest dialogue that is essential to good policy-making.  No wonder everything seems black and white in B.C.; there’s no room for grey.

At any rate, the leadership of the B.C. unions have carefully weighed all these issues, and put their emphasis on fighting the government’s tax package as part of a broader campaign for well-funded, fairly-funded public services, and I support them entirely.  The vote in B.C. is not a referendum on the abstract principle of a value-added versus a cascading sales tax.  It’s been all muddied up with other issues: broadening the base, cutting the rate, cutting corporate income taxes, and everything else that’s been thrown into the haphazard Clark tax stew.  In short, it’s a referendum on the shattered credibility and regressivity of the government’s whole approach to taxes.  And sadly, the unethical, take-no-prisoners approach of the Smart Tax Alliance and its spokespersons is quite consistent with the duplicity of the provincial government’s whole approach.

(Side point:  There are no rules governing campaign funding in the HST debate in B.C.  HST advocates can collect as much money as they can from business backers, without declaring where it came from, and what it was spent on.  That is the stinky future of democracy in our plutocracy.)

For me, here’s the last nail in the coffin.  The fact that the Clark government’s Frankenstein HST hybrid will significantly reduce provincial sales tax revenue at a time when public services are already under intense fiscal pressure, is a powerful and principled reason to throw the whole package out in the referendum, and start the whole tax debate from scratch.