Vaughn Palmer
In Victoria
When MLA Blair Lekstrom quit the B.C. Liberals in protest over the harmonized sales tax, he left a warning for the public about the fiscal consequences of scrapping the much-hated tax.
"We must make some difficult choices," declared Lekstrom as he called on the government to back-burner the tax and consider alternatives. "Do we increase income taxes, increase the provincial sales tax, or cut programs and services?"
Those aren't the only choices. But each would be a fallback position if the province were to tear up the HST agreement with Ottawa and thereby pass on the promised $1.6 billion in federal transition funding.
"I firmly believe that British Columbians must be realistic," Lekstrom went on to say. "Without a strong economy and competitive tax regimes, government cannot afford to meet their continued demands for increased investments in health care, education, social services and all other programs."
His call for fiscal realism was overshadowed by his emperor-has-no-clothes expose of the Liberal failure to "bring the public along" on the HST. But full credit to Lekstrom for raising an issue that has been played down by other critics of the tax.
Contrast his response to that of Chris Delaney and Bill Vander Zalm, the leaders of the petition campaign, when they were asked about transition funding during a recent appearance with me on Voice of B.C. on Shaw TV.
The exchange commenced with a question from Seth Klein of the left-leaning Centre for Policy Alternatives. "Given your conservative orientation, if you're successful and the province cancels the HST and the feds revoke the $1.6 billion in enticements, how would you propose the province make up for that lost revenue?"
Vander Zalm: "It's a little late to think about that now. The government should have thought about that before, because they wouldn't have had the money if they hadn't entered into this agreement with the feds. It's a onetime thing, too, so next year they'd better watch out."
Actually the transition funding is spread over three financial years before it runs out. But the loss would nevertheless blow a $1.6-billion hole in provincial revenues. How would/should/could the province make up for it?
"The government would just have to deal with it the way they might have dealt with it if they hadn't sold out to the federal government," replied Vander Zalm. "It could be more debt. It could be smarter ways of doing things. Hopefully more of the smarter things."
I asked Delaney whether the petitioners would be publishing a list of those smarter ways of doing things. He laughed. "Now I get to help them govern."
Maybe they need help, no? "Yeah, okay, they could use some help," he replied. "I just want to point out that it's not $1.6 billion right now. They've only taken $250 million in the first year, so if they cancel the tax now, it's a quarter of a billion."
The second instalment of $769 million is already booked as revenue this year. The final $580 million is counted as revenue next year. "Yeah," agreed Delaney, "but they've known this for a long time, so if they go down that route, it's their issue."
Not his table. Nor does the text of the legislative initiative against the HST -- the one that is the subject of the petition campaign -- say how government should make up for the loss of the transition funding.
But if the tax were cancelled in response to the petition or under threat of recall, then the province would have to repay the instalment from last year. The payment for the current year would not be forthcoming. Bye-bye as well to the third instalment.
The loss of those revenues would boost the projected deficit for this year to $2.7 billion from $1.7 billion and next year's projection to $1.5 billion from $900 million. The extra debt would increase interest payments by $75 million a year, based on the current rate for long-term borrowing.
In short, the Liberals would be back where they were before they opted for the HST and its accompanying transition funding: facing a bigger than anticipated deficit, more debt, or other unpalatable options.
They could compensate by raising other taxes. A boost of one point in the provincial sales tax for two years would raise about $1.5 billion.
Or they could cut spending above and beyond the target in the current budget, which is $2 billion over three years.
Save $500 million by cancelling the new roof on BC Place? Too late. The old roof is off and the contracts are signed. I doubt the province could recover anything like half a billion at this stage.
More debt, less spending or raising other taxes. Each route would generate its own controversies. Plus the last-minute abandonment of a tax that was crafted to encourage investment would probably have the reverse effect, reducing the rate of economic growth in the year ahead.
Not to say there aren't alternatives to the HST. Just that Lekstrom is on the right track with his warning that none of those choices would be easy, whether undertaken by the Liberals or their successors.
