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September 29, 2011

Voters in B.C. reject change in tax regime promoted by big business

by Roger Annis


Voters in British Columbia delivered a slap in the face to big business interests by rejecting a new sales tax system, the Harmonized Sales Tax (HST). This would have shifted billions of dollars of taxes from corporations onto consumers. The tax was defeated on August 26 by 54 percent of those who voted, some 881,200 electors, in a province-wide mail-in referendum vote.

The HST provoked a storm of protest after it morphed from a secretive federal/provincial government plan in 2008/09 into law on July 1, 2010. In the leadup to the May 12, 2010 provincial election, the incumbent Liberal Party vigorously denied rumours that an HST was in the offing. Within weeks of its election victory, however, the Liberals announced a sudden and unforeseen change of heart.

Protests began immediately and never went away. By August 2010, a petition campaign under the province’s unique referendum law successfully obtained the required number of signatures to oblige the new government to convene a vote. And then Campbell compounded the mess for big business by declaring a simple majority would decide – not the supermajority the referendum law required.

This precedent has horrified big business and their usual mouthpieces in economics departments and right wing think tanks. Their horror is all the more comical in that it was their right wing, Social Credit government in 1991 that introduced the referendum law.

The tax fiasco cost the government its long-time premier, Liberal Party leader Gordon Campbell. He was obliged to resign in mid-2010 when his standing in polls dropped to single digits.

The prime instigator of harmonized sales taxes in Canada has been successive federal governments, Conservative and Liberal alike. The scheme harmonizes the five percent federal Goods and Services Tax with provincial sales taxes (PST’s). Five of the ten Canadian provinces (the Maritimes, Ontario and Quebec) have adopted an HST.

The GST was created in 1991 amidst considerable opposition to replace a federal manufacturing sales tax. In the same spirit, the HST is intended to relieve the burden of provincial, value-added taxes on manufacturers and shift the tax base onto retail and service consumers. In the case of British Columbia, it is estimated that the switch from a combined GST/PST regime to an HST would cost consumers some $1.5 to $2 billion more per year. Manufacturers pegged their annual savings at $140 million in forestry, $80 million in mining and $25 million in the film industry.

When the Conservative government assisted the province of Ontario in making the tax switch in 2009), Finance Minister Jim Flaherty explained the benefits this way: “This is a massive tax cut, a $5 billion tax cut, for businesses in the province of Ontario…”

The federal and provincial governments and the business interests they served were deeply disappointed with the BC referendum outcome. Jock Finlayson of the Business Council of B.C. said, “This is a very, very big setback for the business community and for building a competitive and productive B.C. economy.” Ben Chalmers of the Mining Association of B.C. worries about the competitive standing of his member companies, including with other jurisdictions in Canada. “We know we are competing with places like Ontario, which has a much more efficient consumptive tax.”

So determined were business interests to get their way in B.C. that the federal government provided a one-time, $1.6 billion cash transfer to the province if it introduced the tax. The federal government now says the money must be repaid, though it’s not clear if all of the transfer has actually been received and banked.

A Class Vote for Class Reasons

An examination of the referendum result by the Canadian Center for Policy Alternatives shows that the vote divided along class lines. The wealthiest electoral districts voted to keep the tax. Vancouver’s North Shore voted by 60 per cent or more to keep the HST. Three of the most working class districts in the metropolitan Vancouver region, including the one held by the new leader of the New Democratic Party, Adrian Dix, voted 72 to 76 per cent to scrap it. Every riding that voted for the NDP in the 2009 election, and 25 Liberal ridings, rejected the tax.

The defeat of the tax came about for three reasons. One, the secretive and undemocratic manner in which the tax was imposed provoked strong and sustained opposition. Two, it was correctly perceived as a tax grab in the interests of the wealthy in a province that has seen a dramatic drop in the living standards of many working class people over the past ten years of Liberal government. Three, opposition to the tax was sustained, its opponents refused to let up.

The determination to fight the tax is a good lesson to workers, even if, in this case, the campaign was publicly spearheaded by right wing populists such as ex-Socred Premier Bill Vander Zalm, while the NDP and its trade union backers acted as their silent partners. Bill Tieleman, Communications Director for the Glen Clarke NDP government, always hovered next to the Zalm. The NDP and unions also left the ideological terrain of the anti-tax campaign to the right wing, focusing on the tax’s antidemocratic character but not its class character.

It took Vancouver Sun columnist Pete McMartin to point out the obvious when he headlined a post-referendum column, “Revolt against HST reflects province's growing class struggle.”

McMartin wrote there is little evidence that residents in the province want to dismantle the tax structure that finances the social safety net like the ‘Tea Party’ movement in the U.S. Rather, people voted against a further rise in income disparity. “In B.C.,” he writes, “that income inequality outstripped the national average. A rising tide may float all boats, but here it hasn't done so equally. Too many of us are drowning in debt while our incomes have stagnated.

“And that's what the HST vote was - not political payback, and not the short-sighted spitefulness of a moronic public. It was an SOS.”

McMartin’s argument is backed by the fact that a new right wing political project around which many of the leaders of the anti-HST campaign have gravitated to, the B.C. Conservative Party has not registered a significant lift in the polls since the defeat of the tax. It has been the NDP that has gained.

B.C Federation of Labour President Jim Sinclair pointed out in a September 2, 2011 commentary in the Vancouver Sun that referendum voters rejected the argument by HST proponents that lower taxes for businesses means more jobs for workers. Businesses have received tax cuts worth billions of dollars over the past ten years, he explained. But, “Well paid manufacturing jobs have disappeared. Any growth has been in low paying jobs or government-funded construction jobs.”

But the NDP/labor campaign against the HST has failed to highlight what is on the minds of many workers in B.C., namely, that a radical shift in policy is needed to sharply increase taxes on the wealthy. That money could then be used to create employment, improve social services and take the aggressive measures needed to tackle the climate calamity.

Ten years ago, the B.C. government earned 25 per cent of its revenue from income tax. Today that figure is 14 per cent. New or increased fees and taxes on every manner of government service meet much of the revenue shortfall. B.C. is now the only province in Canada that charges a monthly health care premium ($110 for a family of two). Tuition fees for post-secondary education have tripled.

Tax revenue has also increased from expansion of exploitation of fossil fuel reserves in the province, to the point where B.C. has emerged as a partner climate vandal to neighbouring Alberta. Meanwhile, the province has the lowest minimum wage and highest child poverty of all the provinces.

Waiting for an Election or Building Current Struggles?

The defeat of the HST is a blow not only to the pocketbooks of business interests, it also threatens them with losing their provincial government, for it was the new premier of B.C., Christy Clark, that suffered this defeat, not the departed Gordon Campbell. She embraced the tax in winning the Liberal Party leadership race in early 2011 and tried to ‘win’ the referendum by promising a modest lowering of the rate of the tax. Campbell, on the other hand, is doing just fine–on August 15, the federal government confirmed that the former premier has been appointed as Canada’s new ambassador to the United Kingdom.

The working class has a much improved opportunity to unseat the Liberals in the next election. But the vote could take place as late as May 2013. Workers shouldn’t wait for a Liberal defeat to happen by remote control. A fight is needed today to block the Clark government’s declaration that the cost of taking the province back to the GST/PST regime (including the $1.6 billion payback to the federal government) will be paid by cuts to public services, including the salaries of public sector workers – for a third year of frozen wages (or the ‘zero’ mandate).

The current, province-wide dispute between teachers and the Christy Clark government is an excellent place for B.C. workers to flex their muscle. Teachers are struggling to repair the damage to public education by the Liberals during the past ten years as witnessed by the BCTF’s court victory to reinvest in public education. Teachers deserve the widest solidarity possible.

Only an activist and mobilized labour movement can successfully defend working class interests, regardless of whether it is the Liberals or the NDP in office. Let’s build on our HST referendum victory.

Roger Annis is a retired aerospace worker in Vancouver BC. He can be reached at