Thursday, September 02, 2010

HST saga gets still worse for the Liberals

No matter how much Finance Minister Colin Hansen and Premier Gordon Campbell protest, few British Columbians will believe their claims the harmonized sales tax was “not on our radar” in advance of the May 2009 election.
The latest blow comes from documents released this week under a Freedom of Information request.
Briefing notes for Hansen and reports and e-mails between Finance Ministry managers support one of two conclusions: Either the HST was on the government’s agenda before the campaign, or it so obviously should have been that their competence is doubtful.
The Liberals were asked about the HST during the campaign. They responded, in writing, that “a harmonized goods and services tax is not something that is contemplated in the B.C. Liberal election platform.”
But within weeks of the election, Hansen was discussing an HST deal with the federal government.
Campbell and Hansen insist they only discovered the need for the HST in the days after they were elected.
Hansen said he hadn’t paid attention to Ontario’s decision to bring in the HST — first suggested in January and formally announced in the March 25 budget — because the election was looming. (He said later that Ontario’s adoption of the tax made it absolutely necessary for B.C. to do the same.)
But surely he didn’t quit paying attention to a major tax-competitveness issue months before the vote. Even the Ontario budget came eight weeks before B.C.’s election day and long before the Liberals assured concerned business groups they wouldn’t bring in the tax.
Especially since the FOI documents include a heavily censored briefing note on Ontario and the HST sent to Hansen March 12, two months before the election. That was followed by another briefing note after the Ontario budget.
Hansen said he might have glanced at the briefing notes, but didn’t register the significance of Ontario’s tax change. That’s surprising; Hansen has always been remarkably in command of the details of his portfolios.
The FOI documents raise other questions.
Campbell told the legislature that B.C. officials did not even discuss the HST with their federal counterparts until well after the election. Hansen said the same thing in answer to a specific NDP question. There was absolutely no contact of any kind between federal and B.C. officials until late May, he said.
But there was. The documents show discussions and e-mail exchanges between the B.C. officials long before the campaign began.
Hansen’s explanation is that he did not know any of this when he answered. Anyway, he said, officials should be talking to their federal counterparts about tax changes.
And the documents show the government was selective in releasing information on the impact of the tax. The documents support the contention that the $1.9-billion tax shift from businesses to individuals and families would bring growth in the long term.
But they also forecast a short-term loss of jobs and economic activity. It could take more than five years before wages and jobs recover, says a report from the C.D. Howe Institute.
Hansen says that information is out of date; changes negotiated in the HST implementation reduced the problems. The government has yet to release an analysis supporting that argument. Other reports, he notes, have been more positive.
Finally, the documents include a transcript of Hansen’s HST comments in a radio interview before the election campaign. “It’s clearly a controversial move and one that we would certainly want to get a lot of input on,” he said.
But the government didn’t seek any input. Even Liberal MLAs were kept out of the loop. There was no consultation or analysis. The option of delaying the tax for a year to allow those things was not considered.
And the Liberals are paying a huge price.
Footnote: The documents topped the news reports in all the major media in the province on Thursday, thanks to another government bungle. CBC Radio reporter Jeff Davies submitted the FOI request. The government said it would charge $800 to produce the material. Davies approached seven other news outlets to split the cost and all receive the documents at the same time. The result was an avalanche of bad news.

Wednesday, September 01, 2010

The HST disaster continues for the Liberals

Check the websites for the major media this afternoon - the Times Colonist, Sun, Province, Globe and Mail, CBC - and you'll find coverage of documents released under FOI which challenge the Liberals' claims that the HST was "not on the radar" before the 2009 election and raise large doubts about their optimistic statements about the economic benefits of the tax.
As well as revealing big problems with the implementation of the HST, this qualifies, I'd say, as a great communications disaster. The government could have released the documents at any time. It could have waived the processing fee on the first FOI request.
Instead, it set an $800 fee for processing and releasing the public documents. The media apparently decided to share the costs and the documents, while developing their own reports based on the information - to be released at the same time.
Which was very bad for the Liberals.
The Times Colonist editorial here offers a useful perspective.

Tuesday, August 31, 2010

Resource sales risk shortchanging future British Columbians

The provincial auditor general and the government are in a tussle, again, over the way more than $440 million in annual subsidies to the oil and gas industry are being handled.
It's tough to get people interested in accounting issues (until their RRSPs plummet because some company cooked the books and the auditors didn't provide the warning they were supposed to).
But the dispute raises broader issues, including the temptation for governments to hold a fire sale on non-renewable resources to pay the bills today and leaving future generations with nothing.
First, the accounting battle.
Auditor General John Doyle says the government is violating Canadian Generally Accepted Accounting Principles by failing to record the generous incentives to companies as expenses.
The government disagrees and says other provinces handle their incentives to lure companies in the same way.
I don't know who is right. My experience as a mid-level corporate guy was that the auditors had the last word. They were charged with certifying that the company was following the rules and the financial statements accurately represented reality.
If they expressed reservations about the financial statements - as Doyle has done - it was a bad thing and could even increase the cost of borrowing. Lenders and bond rating agencies like clean financial statements.
The accounting dispute raises more fundamental issues.
We own the natural gas resources under the ground.
The government of the day, on our behalf, sells companies the right to find and develop them. Leases are auctioned each month, giving companies the right to explore and develop.
If natural gas is found, the government, on our behalf, charges royalties on the gas taken from the ground. It's big money, about $1.2 billion this year.
Setting royalties is inexact. Try for too high a price and the energy companies head off - or threaten to head off - to Alberta or Montana or Nigeria.
The government is trying to be competitive enough to attract the energy companies, while ensuring that the owners - the people of B.C. now and in the future - get a good price for the gas we're selling.
But any government has a conflict of interest.
It wants the resource revenues - and the jobs and economic activity -now. There is unavoidable pressure to cut royalty levels to encourage companies to explore and develop gas wells as quickly as possible.
Even if the smart thing, in terms of the province's long-term interests, might be to keep royalty rates high and accept that development will take place over a longer term. That's especially true when natural gas prices are low, as royalties are based on the value of the resource.
The incentives - royalty cuts for deep wells and other harder to get gas, subsidies to help companies build roads and the like - apparently work. The government maintains each dollar in subsidies brings a substantial increase in royalties and drilling.
But the big winners are the energy customers, as jurisdictions cut the price of their resources to compete with each other. The Alberta government commissioned a review of its royalty rates and found they were too low; the public was losing about $2 billion a year. B.C. has never done such a review.
The big losers, arguably, are future generations.
We're selling a non-renewable public resource today and spending the money on ourselves.
When the gas - or coal or oil - is gone, the royalty revenue stops. A future generation will be left with government spending based on a revenue stream that no longer exists.
There is a simple solution. Other jurisdictions have set up heritage funds for all or part of non-renewable resource revenues.
That provides a cushion for the day the resource runs out.
And it reduces the temptation for governments to sell too cheaply in pursuit of short-term benefits.
Footnote: The outlook for natural gas prices is weak. The government based its budget on prices around $6.20 per gigajoule; prices have been more than $1 below that through the year. Each dollar that the price falls below the forecast means about $300 million in lost revenue.