The HST: The Great Divider

Political tensions over HST have intriguing implications

One benefit Canada's recently-averted election holds for Liberal leader Michael Ignatieff is the freedom to flip-flop on his own rhetoric without any serious consequences.

Take, for example, a recent Ignatieff flip-flop on the issue of the Harmonized Sales Tax.

For those not in the know, a Harmonized Sales Tax is a fusion of Provincial Sales Taxes (PST) the federal government's Goods and Services Tax (GST). The argument being raised in favour of these taxes is that they're good for business, making it easier and less costly for business to remit these taxes to the government.

The argument against these taxes -- and a very persuasive argument at that -- is that these taxes are bad for consumers, and would apply sales taxes to transactions to which they hadn't previously applied, such as grocery and housing bills.

Needless to say, the matter has been very controversial in provinces that are planning to implement the HST -- chiefly British Columbia and Ontario. There's been an intriguing federal-provincial political dynamic at play in the affair, in which both major provincial and federal parties seem to be at odds with one another over the issue.

The Stephen Harper government in Ottawa has been instrumental in decisions to implement the HST, offering billions of dollars in short-term help to provinces that decide to implement the tax.

Ignatieff has publicly derided the HST, referring to it as the "Harper Sales Tax".

Finance Minister Jim Flaherty admits that the HST would be bad for Canadians in the short term, but it insists it would be good for the country in the long run.

"It's good longterm economic policy for the people of Canada," Flaherty insisted, noting that this is a provincial matter. "The decision to harmonize is always up to the individual province whether they choose to do it or not."

When pressed on whether or not he was "picking a fight" with Ontario Premier Dalton McGuinty (or BC Premier Gordon Campbell for that matter, also a Liberal), Ignatieff seemed to shift his position away from using it to score cheap political points and closer to the position being taken by the government.

"Our position from the beginning has been that this is a matter between the Harper government and the provincial governments concerned. Period," Ignatieff insisted. "I'm the leader of the Opposition. I've got no position to clarify. It's between those two governments. And when I become Prime Minister I'll have other decisions to take."

Ignatieff has apparently moved to reassure McGuinty that his party's federal cousins wouldn't kill the HST deal just to maintain their own rhetoric.

"I assured him that the Liberal Party of Canada is a party of government," Ignatieff said. "We don't rip up agreements that have been duly negotiated by previous administrations, and I made that clear to him and I think we're on the same page on this issue."

That's an obvious shot across Harper's bow in regards to various issues such as the Kelowna Accord and the national daycare program. (Unfortuantely for Ignatieff, the Canadian public at least seems to be largely comfortable with these particular decisions.)

However, Ignatieff and McGuinty aren't the only ones to be at odds over the HST.

Ontario Progressive Conservative leader Tim Hudak has been vocal in his opposition to the HST, paying little mind to the governing federal party's effective sponsorship of the tax. Although Hudak has a different name for it than Ignatieff's -- he calls it the Dalton Sales Tax.

"[Toronto Dominion] Economics shows the 'Dalton Sales Tax' is just that - a permanent tax grab that will result in higher prices on the things we buy with no immediate benefit to consumers despite the premier's promises," Hudak publicly fumed. "[Premier] Dalton McGuinty has taken the idea of reducing red tape for business and turned it into a massive tax grab on Ontario's families in the midst of a recession."

Any direct tensions between Hudak and Stephen Harper on the matter must certainly be minimal -- Harper has had very little to say about the HST, and simply allowed his Finance Minister to carry that particular football.

But Hudak's deputy leader, Christine Elliott, is married to Jim Flaherty. Whatever political tensions subsist between the two over the matter are likely being contested -- perhaps silently -- over the dinner table.

"As Christine said to me on the weekend ... we'll remain married of course, and the children are very happy with that, but we're non-harmonized," Flaherty recently joked.

So if the Flaherty-Elliott marriage isn't at risk over the issue, the Liberal party faces a much more serious dilemma.

One way or another the HST is an issue that may harm the Liberal party significantly. Liberal MPs are worried that they'll be the ones to suffer the political consequences for the HST should they have to face a federal election before the Campbell Liberals face a provincial vote.

That particular dilemma for the Liberals could be as immediate as Jack Layton and Gilles Duceppe decide it should be.

However this federal-provincial political dynamic plays out -- with the actions of provincial parties harming the prospects of federal parties, and vice versa -- the HST could be a largely-peripheral issue that could interest Canadian political scholars for years.

Navigating Canada's Way Out of Recession (And Beyond)

Brad Wall calls for post-recession plan

Speaking in advance of the First Ministers' Conference, Saskatchewan Premier Brad Wall has called upon his counterparts to help establish a coordinated post-recession plan.

“We need to talk about the future. How does Canada emerge from this recession?” Wall asked. “Are we going to focus on the knowledge economy, on an innovation agenda that can create jobs for the longer term?”

Speaking about each Province's and each jurisdiction's "innovation strengths", Wall suggested that, “Maybe we identify what those strengths [in each province] are so there can be a co-ordinated approach."

Wall certainly isn't in a hurry to declare the recession to be over. Not only is it not true, but it would certainly come with demonstrable political consequences.

“I think everybody is really hesitant to say, ‘Hey, the recession is over,’" Wall admitted. "As long as somebody is not working today, because they’ve lost their job in the recession, how would they feel [about that statement].”

“There’s positive signs ... but I think all the premiers and the government of Canada needs to be vigilant about getting us firmly on that road to recovery,” he added.

Of course, despite the unsurprising enthusiasm of certain individuals for central planning, Wall's proposed coordinated post-recession plan shouldn't be mistaken for central planning.

While such individuals may want to condescend their way out of admitting it, the most fundamental weakness of central planning is that it ignores the specific and individual needs of specific and individual regions and industries.

While certain individuals are almost certain to not understand this, Brad Wall clearly does, as do his fellow Premiers.

"I’ve heard the premiers of Central Canada say pretty clearly that they understand that each province has a different challenge and each province has a different approach,” Wall explained.

To expect a central plan to be able to adequately balance the needs of Alberta's oil-based economy, Saskatchewan's burgeoning oilpatch or Ontario's manufacturing-based economy would be foolish. Thankfully, Canada's Premiers understand this, even if others do not.

Another measure to emerge out of the First Ministers' Conference could be Harmonized Sales Taxes in Saskatchewan, Manitoba and Prince Edward Island.

Federal Finance Minister Jim Flaherty has offered federal funds to help facilitate the harmonization of the three provinces' Provincial Sales Tax with the GST -- a deal Ontario and British Columbia have already taken advantage of.

"We'll see what their governments decide to do," Flaherty said. "But the same proposal -- in terms of transition funding -- that we made with the province of Ontario followed by the province of British Columbia is available to those provinces as well."

"This is solid economic policy in the long run for Canadian businesses and therefore for Canadian jobs and for growth of the Canadian economy," he added.

Whatever the results of the First Ministers' Conference may be, one thing is certain: if each Province's Premier returns from the conference with a better idea of how Canada can move forward out of the recession, and beyond, the value of this will far outstrip their efforts.

Tim Hudak Pulls Out Ontario Conservative Leadership

Debate over Human Rights Commissions should intensify with new Tory leader

The leadership of the Ontario Progressive Conservative party has been decided today, as Tim Hudak has emerged the winner.

The new leadership of the party began to take shape earlier this afternoon when Randy Hillier was eliminated from contention.

At that time Hudak had been leading, with Frank Klees in second place. Projected front runner Christine Elliott collected the third most first-choice ballots.

The principal issue in the leadership race turned out to be the Ontario Human Rights Commission.

Hudak and Hillier favour abolishing the OHRC. Elliott and Klees prefer to reform them.

Elliott and Klees were adamant that a call to abolish the OHRC would give the next election to the Dalton McGuinty Liberal party. Hudak had pulled no punches in denouncing such sentiments as "Liberal-lite".

"If you want to put the election on a platter for the Liberals, the best way to do so is to run from our conservative principles and try to be Liberal-lite," he told Klees during a debate. "If you take on McGuinty's position, then you're Liberal lite."

Klees, at the time, cautioned that wedge politics have been and would continue to be, disastrous for the party.

"I don't want to go back to those days when wedge issues were the flavour of the day, when we were picking fights with every stakeholder group in this province," he explained. "That's why we're not in government today."

Apparently, neither Elliott nor Klees, who had both denounced Hudak's plans to abolish the OHRC, considered the issue pivotal enough to bow out of the race in order to ensure the other reformist candidate a path to victory.

That may speak volumes about how seriously either of these candidates considered the OHRC. Both had come out in favour of reforming -- as opposed to abolishing -- the Commissions, although only Klees had actually outlined a program for reform.

Elliott may have also had any fiscal conservative credibility she wanted to lay claim to kneecapped by the deficits currently being run by her husband, federal Finance Minister Jim Flaherty. Regardless of whether or not these deficits are his fault -- and they aren't -- he will, nonetheless, have to wear them for a long time to come.

Perhaps his wife will as well.

One can only hope that Tim Hudak heeds Frank Klees' warning about wedge politics, and that Hudak finds a suitable place for Christine Elliott within the new party leadership.


Other bloggers writing about this topic:

Russ Campbell - "Tim Hudak Wins Ontario PC Leadership Race"

Dr Roy Eappen - "New Tory Leader in Ontario: Tim Hudak"

Brian Gardiner - "Hudak Wins"

Hollow Triumphalism Interrupted

The numbers don't support the portrayal of the Tories as economic goats

With Canada on the brink of at least two years of budget deficits, opponents of the governing Conservative party couldn't be happier.

The message coming from most of Canada's opposition is very simple: oh, if only the Liberals were still in power. Then we wouldn't be facing down a deficit.

The theorem is basically divided into two parts: through spending increases and tax cuts, the Conservatives spent Canadians right down to the brink of a deficit. Even if the hit to government revenues were too big, the maintained Liberal surpluses would at least render the deficits smaller, and more managable.

But those actually paying attention to the numbers know this isn't true.

As done previously here at the Nexus, National Post Full Comment editor Kelly McParland compares the current budget numbers to those forecasted by the Liberal party, and reaches a not-so-shocking conclusion: they aren't that different.

First, there's the matter of the "wasted surplus". As it turns out, then-Finance Minister Ralph Goodale was planning a program of tax cuts and increased spending worth a total of $39 billion to implement if the Liberal party managed to win the 2006 federal election.

The Liberal party had forecasted annual surpluses of $1.6 billion to $3.4 billion.

According to the fiscal plans made by the Liberal party under economic models that forecasted continuing surpluses, the deficit under the Liberals would have been at most $2 billion smaller. This is also before the addition of any additional costs due to the national daycare program the Liberals had planned to put in place.

The possibility is very real that this surplus would have been larger under the Liberal party. The possibility is also much more likely that Canada would have sustained a structural deficit under the Liberal party.

This shouldn't be terribly shocking. The Liberal and Conservative parties used the same economic projections to plan their spending. In terms of raw numbers, Ralph Goodale and Finance Minister Jim Flaherty made the same plans.

As such, an important question looms: do both the Liberal and Conservative parties have to "wear" the deficit considering the similarity of their spending plans? Or is there something else to blame for this deficit?

This is a false choice. The answer is a little bit of both.

No matter what they may insist now, few people, if any, predicted the sheer scale of the economic crisis that has led to this deficit. Considering that the government has jumped from budgeting a $2 billion surplus to budgeting a $36 billion deficit (with a $30 billion deficit next year), external influences are responsible for the majority of the surplus.

The Conservatives, however, very much do have to answer for their share of the deficit. They ran on the premise of being more fiscally responsible than the Liberal party, and they delivered something very different. Then again, the Liberal party also campaigned on being more fiscally responsible than their competitors, and their spending plans also speak for themselves.

Given the current levels of spending by the Canadian government, there should be little question that this deficit was inevitable regardless of whomever was in power. This economic crisis was one born in a foreign country, albeit one with ever-closer economic ties with Canada.

It's becoming increasingly difficult to deny that Canada has become much more vulnerable to economic crises born in countries that irresponsibly under-regulate their economies -- in particular, their financial markets. Then again, considering that the United States is Canada's number one trading partner, perhaps the impact would have been just as inevitable in NAFTA's absence.

This is a matter for much more experienced economists to debate.

The bigger picture is that of the comparison between Canada's current economic and fiscal situation and the one the country would be in if the Liberal party was in power. The pictures are scarcely any different.

Not that those eager to pin this matter squarely on the Conservative party are in any rush to admit this. Which only underscores the opportunism and hollow triumphalism of the argument that the Conservatives, and the Conservatives alone, are to blame for the deficit.




Other bloggers writing on this topic:

The Phantom Observer - "We're All Guilty of 'Budget Bias'"

...And Sometimes You Reap What You Sow

Harper's chickens set to come home to roost

There's a saying in life, as in politics: be careful how you treat people on your way up, because you'll meet them again on your way down.

That is something that Stephen Harper should keep in mind today, as Cumberland-Colchester-Musquodoboit Valley MP Bill Casey has announced he will vote no-confidence in the government on its economic update a week from today.

"At this time of economic crisis, Stephen Harper has failed Canadians as prime minister," Casey announced. "Rather than providing leadership and a badly needed economic stimulus package, Mr. Harper and his finance minister, Jim Flaherty, opted instead to play partisan politics and, for some reason, attack unions and women’s rights."

While coming off as little more than typical fickle rhetoric, Casey's announcement at least comes from someone with a little credibility on the topic.

In June of last year, Casey voted against the Conservative budget due to its perceived reneging on the Atlantic Accord.

In other words, Casey has voted against this government before -- while he was still a member of it. Furthermore, as an independent MP, Casey doesn't receive any government subsidies.

While the opposition parties move to defend their entitlements, Casey can at least argue that he's simply voting on the virtue of the economic update.

But it's also hard to overlook the vengeful undertones of in Casey's move. After being booted from the Conservative caucus for nothing more than voting in what Casey no doubt legitimately believed was in the best interests of his constituents, it would be hard to fault Casey for wanting to get even with Stephen Harper -- especially considering that Casey's vote will almost certainly not be the deciding factor in the government's downfall.

"Every day I have people, especially single mothers, on unemployment who are looking to upgrade their skills or their education, but I haven’t been able to help them," Casey said. "This economic statement does nothing to help them. It does nothing to help people who have lost jobs, either."

Casey's decision to vote against the Harper government should give Stephen Harper ample reason to think twice before turfing his MPs for voting their conscience.

Toronto Star Makes Its Facts Up -- Again

GST cut allegedly the most disastrous thing to happen to Canada's economy since Lester Pearson

In an editorial published in today's Torotno Star, it seems their editorial staff has a bone to pick with Stephen Harper over the recent 1% (from 6% to 5%) cut to the GST.

In short, it seems the GST cut will be single-handedly responsible for all of the economic difficulties Canada is forecasted to experience in the coming year:

"Back in November, which in economic forecasters' time already seems like an eternity ago, Finance Minister Jim Flaherty presented a fairly sanguine outlook for the year ahead. For 2008, he saw growth moderating just a little, from 2.5 per cent last year to 2.4 per cent.

Turns out he was far too optimistic.

Yet, carrying over that unwarranted sense of optimism into his fiscal projections, Flaherty also boosted the projected surplus for this year almost fivefold – from the $3 billion figure in his spring budget to a whopping $13.8 billion in his fall economic statement.

He then applied almost the entire windfall to tax cuts, frittering away a full two-thirds of the projected surplus on the Conservatives' second percentage point cut in the Goods and Services Tax in as many years.

But now that Flaherty has almost emptied Ottawa's coffers with his cumulative two-percentage-point, $12 billion GST extravaganza, private forecasters are yet again marking down their growth projections for 2008. For example, TD Economics, which is the highly respected forecasting arm of the TD Bank, last month knocked one-half of a percentage point off Flaherty's November growth projection with a warning that "the risks (of recession) have become acute."

And with each decline in the outlook for growth this year reflecting the marked increase in pessimism about the prospects for the troubled U.S. economy, the small fiscal cushion Flaherty has left himself to deal with the steadily mounting uncertainly shrinks further still.

For Ontario, the combination of the high Canadian dollar, $100-a-barrel oil and a U.S. slowdown could cripple the hard-pressed manufacturing sector, especially the all-important auto industry. The manufacturing sector needs help, but as Prime Minister Stephen Harper keeps warning, Ottawa has almost nothing left after its tax cuts.

Flaherty, of course, would say that his two GST cuts are just what any economist would order for a weakening economy, namely billions of dollars of stimulus to encourage consumers to spend.

Unfortunately, more spending on Chinese-made products, which represents a good percentage of the goods you buy today, creates more stimulus in China than it does in Canada. Just as important, more consumption won't fix what ails our economy in that it will not make our struggling manufacturers more competitive with foreign imports.

That is why virtually every respected economist in Canada opposed the Harper government's cuts in the GST.

At the same time, cutting the GST was a regressive move in that it put most of the money into the hands of people who buy expensive cars and diamond rings as opposed to those who spend their limited incomes on groceries and paying the rent.

Those with the fewest resources will inevitably be the hardest hit by a downturn. For them, a better move would have been for Harper to implement an anti-poverty strategy that would cushion them from a slowdown and ease the hardship they endure even in good times.

Or had Flaherty given some of the $12 billion to cities, not only would the stimulative impact have been greater, but some of the deep-seated problems that plague our underfunded cities could have been solved.

With their GST cuts, the Tories have wasted an opportunity to make the economy stronger and more competitive, to address the plight of cash-starved cities that are engines of economic growth, and to lend a helping hand to millions of poor Canadians who are forced to live their own personal recessions even in the best of times.

And why? So Harper could have a "photo op" in front of shelves of foreign-made televisions, all showing the 5-per-cent GST on their screens, in a consumer electronics store on New Year's Eve. The foreign workers who make those TVs owe him a big vote of thanks."

It's terribly heady stuff, and gives one cause to reconsider the wisdom of the tax cut in question. Yet something doesn't seem quite right.

An October 31 Globe and Mail article reminds us why.

As it turns out, the $10 billion in tax cuts that the Star is complaining about has been accrued not exclusively from the GST cut, but rather combined across cuts to the GST, personal income tax and corporate income tax.

Part of those tax cuts were of precisely the nature that the Star and many publications like it have long clamoured for: an increase in the amount of money an individual can earn before having to pay taxes (to $10,100 by January 1, 2009), and a 0.5% cut to the lowest tax bracket, two adjustments long called for as poverty-fighting measures.

That was in addition to a modest 1% cut across all personal income tax brackets.

In fact, as it turns out, the tax cuts in question do indeed make Canada's economy more competitive. By 2012, Canada's business community -- including Ontario's manufacturing sector -- will enjoy the lowest corporate tax rate of all major industrialized countries.

Lower corporate taxes, naturally, make a strong incentive for businesses to open in, or potentially relocate to, Canada.

A previously-decided tax rate reduction for small businesses was also rescheduled to happen sooner.

As it turns out, the 1% reduction in the GST is actually worth $5.6 billion. Yet even if the previous reduction to the GST were included (presumably another $5.6 billion), the Star would still be wrong, as that $5.6 billion wasn't included in the $10 billion drop in Jim Flaherty's projected surplus as forecasted in the 2007/08 Fiscal Update.

Yet, in the entire 622-word editorial, there's no mention of this -- or any of the other tax cuts that the Star's annointed favourite, Stephane Dion, declined to stop when he had the opportunity to (no mention of that, either).

Once again, the Toronto Star has been caught being either editorially lazy or calculatingly dishonest.

One wonders why the Star would seemingly work so hard to misrepresent the Conservative party's tax cuts, and undermine its journalistic integrity. Then again, journalistic integrity tends to matter very little to activist journalists such as those at the Toronto Star.