Tax policy by referendum: British Columbia's unharmonized tax reform.

Author:Richards, John

There is a parallel between the student protests in 2012 leading to cancellation of Quebec's tuition fee increases and the referendum a year earlier that put a stop to sales tax reform in British Columbia. No one likes paying higher taxes or fees. But, viewed objectively, former Quebec Premier Jean Charest had a good case--as did former B.C. Premier Gordon Campbell. (1)

Charest defended his proposed university tuition fee increases in terms of both efficiency and equity. The efficiency case: Quebec imposes high tax rates, has a large public debt and is running deficits that, in the medium term, are untenable. Other provinces have demonstrated that higher student fees do not discourage student enrolment (Quebec enrolment is below the Canadian average despite very low fees). The equity case: Students are overwhelmingly from families with above-average incomes, and their degrees will enable them in turn to earn above-average incomes. Hence, for reasons of both efficiency and equity students should bear a larger share of the university costs they generate.

Rather than rebut Charest's case, the students successfully changed the debate into "questions of principle." Can a government, thanks to its commanding a majority in a legislature, legitimately legislate whatever level of taxes--or fees--it dictates? If a significant number of people object strongly to a tax or fee, should a government be required to seek additional democratic legitimacy, say by submitting the proposal to a referendum? Students answered no to the first question and yes to the second. I disagree. My answers are yes to the first question and no to the second.

The same questions can be asked in relation to B.C.'s debate over its harmonized sales tax, in which ex-Premier Bill Vander Zalm led a successful referendum campaign that culminated in the government rescinding the HST. For the first time, Canadians decided a major tax policy in a referendum, as opposed to in a general election in which voters weigh a government's tax decisions against other considerations. While this was the first tax referendum in Canadian history, it may not be the last.

At first sight, Quebec student leaders and Vander Zalm do not have much in common. The student leaders take inspiration from the Occupy movement and French socialist traditions of tuition-free universities; Vander Zalm is a populist in the American Tea Party tradition. There are differences between the campaigns. The students generated sufficient civil disobedience to precipitate an early general election, and the winning party, the Parti Quebecois, rescinded the fee increase. While a large minority supported the students, opinion polls suggested the majority did not. B.C. has referendum legislation on the books, and Vander Zalm's campaign successfully exploited it. What the two events have in common is that both successfully challenged the legitimacy of a major revenue-raising decision enacted by a duly elected government.

For those east of the Rockies, the B.C. HST referendum is probably, at best, a vaguely remembered incident (just as Quebec's tumultuous 2012 student protests are west of the Rockies). I start with a chronology of events, written with at least a semblance of neutrality. Following that, I put forward two conclusions. The first is obvious: there is little understanding among British Columbians and probably Canadians in general--of the desirability of value-added taxation as the basis for consumption taxes. Second, this incident provides reason to fear the loss of legitimacy of parliamentary supremacy in matters of taxation.

A chronology

In the spring of 2009, British Columbians voted in a provincial general election. Tax policy was a major issue. In 2008, the governing Liberals had introduced a carbon tax with scheduled rate increases in future years. It was the first significant venture in this direction by any North American jurisdiction. In one of its less principled decisions, the NDP, official opposition in Victoria, promised that if elected it would repeal the tax. The Liberals won.

With the election over, Ottawa offered an inducement of $1.6 billion to B.C. (a similar incentive had been offered to Ontario) to transform its provincial sales tax (PST) into a broad-based value-added tax, the HST, that Ottawa would administer jointly with the federal goods and services tax (GST). From the opening scene in the summer of 2009, when then-Premier Campbell and then-Finance Minister Colin Hansen announced its conception, to the summer of 2011, when the curtain fell on its corpse, the HST consumed much of the political energy of British Columbians.

In the wake of a general election in which the governing Liberals had dismissed casual questions about sales tax reform, and with no public consultation, the B.C. cabinet accepted the federal offer. As in most provinces, the recession had induced a budget deficit and the prospect of a $1.6 billion windfall had obvious appeal. In retrospect, agreeing to the federal offer before conducting a major public engagement on the case for broadly based value-added taxation was a fatal mistake...

To continue reading