Strategy

The HST hornet's nest

A new petition against the HST in British Columbia has the government in turmoil, and it isn't clear what has been gained.

Like Bill Clinton without the charisma, Premier Gordon Campbell is at heart a policy wonk who will leave British Columbia a legacy of mostly non-partisan innovations: a carbon tax, fixed election dates, the Trade, Investment and Labour Mobility Agreement with Alberta, the Recall and Initiative Act. Ironically, this last piece of legislation could be his political undoing as opponents of another of his technocratic initiatives, the Harmonized Sales Tax, have succeeded in mobilizing bipartisan dissent.

On June 30, the last day the old provincial sales tax remained in effect, a coalition fronted by former Social Credit premier Bill Vander Zalm presented a petition of 557,383 valid signatures to the province’s chief electoral officer, which forces a bill abolishing the HST to be either voted on in the legislature or put to a referendum. More recently, a last-ditch court challenge by business groups supporting the HST failed in August, leaving the province’s economic and political future mired in the kind of uncertainty that Campbell long worked to banish from B.C.’s polarized landscape.

A never-before-convened committee of MLAs now has 90 days to decide whether to opt for the legislative or referendum route. A referendum, which would be held a year from now and requires the support of 50% of registered voters to enact a law, would be unlikely to overturn the HST. But both the committee and the government are under pressure to resolve the issue sooner with a free vote in the legislature which, given the governing Liberals’ slim majority, would likely doom the tax.

That has pundits speculating about Campbell’s resignation and a wholesale upheaval in the party he’s led for 15 years, far in advance of the next election in 2013. More immediately, ditching the HST would leave a hole in B.C.’s revenues that could not readily be filled. The PST was legislated out of existence last spring, and the $160-million-a-year apparatus to collect it has largely been dismantled.

Plus, rolling back the HST faces legal and financial roadblocks the petitioners apparently had not considered. Breaking B.C.’s agreement with the federal government would require 18 months’ notice and the return of more than $1 billion in transitional transfers already received from Ottawa.

The confusion leaves businesses — both the small ones mostly opposed to the HST and the large ones mostly in favour — unable to calculate their future costs with any precision. It almost certainly played a role in the 14.1% slide in existing home sales in July versus June, even though the HST applies only to commissions and fees.

“Businesses have had to invest in business systems and different protocols for compliance. They’d like a sense of security that that’s a good investment,” says John Winter, president of the B.C. Chamber of Commerce, one of the groups pushing to keep the HST. For now, companies will stick to collecting the HST, though, as Winter says, “there’ll always be that nagging feeling in the back of their minds that something may change.”

All along, the rhetoric has focused less on policy than on Campbell’s reversal on the HST issue since the 2009 election campaign, and the extension of sales taxes to services the PST overlooked. While their numbers differ, separate studies by the provincial government, Statistics Canada and the Fraser Institute all show a slight increase in household taxes under the HST, skewed toward higher-income households. All these studies assume no change in consumers’ spending habits, however, and most experts expect the effect for government to be revenue neutral — causing some to wonder why Campbell bothered to poke this hornet’s nest in the first place.