Strategy

Budget 2011: Bloc balks at budget — and the HST

Bloc Québécois to vote against budget after no deal made on HST compensation.

The absence of a deal on harmonized sales tax (HST) compensation — a long-festering source of tension between Ottawa and Quebec — seems to be the most important reason why the Bloc Quebecois 49 MPs plan to vote against the federal budget.

‘We played our cards based on Quebec’s interests,’ Bloc leader Gilles Duceppe said in a post-budget scrum, indicating that his party would not be propping up the government. ‘That’s what we do here. And we certainly can’t accept what’s been offered.

‘There’s no reason why Ontario should get $4.3 billion and British Columbia should get $1.6 billion and Quebec should get nothing.’

The dispute over HST compensation reaches back more than two decades. In 1990, the federal government under Brian Mulroney struck a deal with the government of Quebec Liberal premier Robert Bourassa that, two years later, saw the province become the first in the country to harmonize its provincial sales tax with the then-new federal Goods and Services Tax (GST). The province’s 8.5% provincial sales tax was combined with the GST.

When the deal was originally struck, Ottawa offered Quebec no compensation for assuming administrative responsibilities for the HST, nor for any loss in sales tax revenue stemming from the harmonization.

However, as the feds sought tax harmonization deals with other provinces in ensuing decades, it wooed them with rich compensation packages. In 1997, New Brunswick, Newfoundland and Nova Scotia shared $961-million in compensation for harmonizing their taxes; two years ago, Ontario agreed to a $4.3 billion compensatory package, while British Columbia’s move to a Harmonized Sales Tax earned them $1.6 billion from the feds.

Quebec first expressed concerns about its lack of compensation when the Atlantic provinces’ deal was unveiled. Its complaints got louder in the wake of the Ontario and B.C. deals. On April 28, 2009, the Bloc’s critic for the Economic Development Agency of Canada for the Regions of Quebec, Jean-Yves Laforest, introduced a motion in the House of Commons calling for the feds to negotiate in good faith with the Government of Quebec to resolve the dispute, demanding a compensation package prorated to that awarded Ontario.

On January 26th, when the Bloc released their list of demands for the 2011 federal budget, a $2.2 billion HST compensation package was chief among them.

During Monday’s question period in the House of Commons, Duceppe claimed that after months of negotiations between Ottawa and the Liberal government of Jean Charest in Quebec City, a draft agreement to resolve the dispute awaited only the signature of Finance Minister Jim Flaherty. NDP MP Thomas Mulcair, who represents the Montreal riding of Outremont, further suggested that the federal government was stalling on finalizing the agreement, rather than including it in the budget, for political reasons. He argued that its absence from the budget would make it impossible for the Bloc to support the government, and that the unveiling of a deal during an election campaign would help the Conservatives curry favour in Quebec.

In a post-budget interview, Flaherty dismissed the claims, suggesting that there were fundamental problems with the proposal Quebec submitted, and that he had yet to receive additional information he’d requested from the province. However, he wouldn’t rule out the possibility that a deal could get done soon — possibly in the midst of an election campaign.