Governments aren’t supposed to make tax policy — or prepare budgets — like this.
The Liberals’ last-ditch attempt to save the HST is a dramatic flip-flop on tax principles they once said were essential for the province’s future.
Finance Minister Kevin Falcon says that if voters decide to stick with the HST in this summer’s referendum, the government promises to cut the rate from 12 per cent to 11 per cent on July 1, 2012. There would be another cut to 10 per cent on July 1, 2014, assuming the Liberals are still in office.
By 2014, Falcon claimed, the tax burden on individuals and families would be less than it was under the provincial sales tax,
But wait, as they say on late-night infomercials, there’s more. If voters stick with the HST, the government will send out one-time payments to help cover some of the increased tax burden. Families with children under 18 will get $175 per child; low-income seniors would also get $175. (Using taxpayers’ money to send cheques to the province’s richest families hardly seems sound public policy.)
Cutting the HST rate by one percentage point, according to Falcon, would cost the government about $850 million a year. So by 2014, the government would be taking in about $1.7 billion less in revenue than it had planned.
No worries, says Falcon. The government would still balance the budget by 2013/14 and manage despite the lost revenue.
If the HST is approved, he said, the government would raise the corporate income tax rate from 10 per cent to 12 per cent, reversing past cuts. That would bring in about $400 million a year.
And the government would cancel the planned elimination of the small business tax, adding about $250 million a year to government revenues.
That still means government revenue would fall by $1.7 billion a year when the HST rate reductions were in place.
The other tax changes would bring in about $650 million, leaving a billion-dollar gap.
Falcon’s claim the budget can still be balanced on schedule rests on the fact that the full impact of the HST cuts won’t hit until after the target date. Even so, the government’s forecast allowance and contingency funds — the cushions against unexpected revenue losses or spending needs, like a bad forest fire season — are now committed. There is no margin for unforseen events And the budget already called for spending cuts in most ministries this year, with a freeze in place for the following two years. (Health being a notable exception.)
Given the Liberals’ track record of HST misinformation, Falcon should present a clear budget plan showing how the revenue shortfalls will be handled before people vote in the referendum.
The Liberals’ credibility overall is hurt by the latest lurch from tax policies they once said were critical to the province’s future.
Take the corporate tax increase. When NDP leader Adrian Dix advocated the same tax change, Falcon said corporate tax increases would threaten the fragile economic recovery. Education Minister George Abbott said the proposal represented “the leading edge of 18th-century socialism in this province.”
Or the HST rate cut. When Falcon proposed an HST rate reduction during his leadership campaign, Christy Clark was critical, saying the government couldn’t afford to give up billions in revenue. Anyway, she said, changing the rate before the referendum would just look like the Liberals were trying to buy people’s support for the tax with their own money.
Credibility is a big referendum problem. The Liberals have provided misinformation on the HST every step of the way, underestimating the costs to families, inflating the economic benefits and claiming it was revenue-neutral. All the claims were contradicted by an expert panel the government appointed.
And now they are offering a new tax policy and making new claims with only weeks to go before the referendum, leaving no time to commission a new independent analysis to replace the now largely useless one.
Trust us, Clark says. This time we’ve got it right.
Some voters will. Some will look at the costs of getting out of the HST and decide it’s best to stick with the tax.
But many will likely be seeking much more information before buying the government’s claims this time.
Footnote: The New Democrats seized on past comments from Clark in question period Wednesday. During the leadership campaign, she rejected Falcon’s call for a rate cut. “Cutting the HST by one point is more than $800 million out of the budget this year and every year after, $1.6 billion for a two-point cut, and we need to ask ourselves where we’re going to get that money, because we’re either going to have a $1.6-billion bigger deficit, or we’re going to get $1.6 billion fewer heart operations, special needs teachers, school facilities, hospital emergency rooms.”