Like Harper’s rapacious trust tax, HST is another opportunity squandered by the federal Liberals. Is anybody home?

Harper so far unscathed by HST blowback

Federal support key to tax harmonization that has been poorly received by Canadians
Steven Chase

Ottawa — From Friday's Globe and Mail Thursday, Oct. 01, 2009 06:43PM EDT

Stephen Harper's fingerprints are all over changes that will mean increased sales taxes on about one in five consumer purchases in British Columbia and Ontario starting next July.

But while voter anger over the impact of the harmonized sales tax has scorched B.C. Premier Gordon Campbell – and singed Ontario counterpart Dalton McGuinty – Mr. Harper's federal Conservatives have so far escaped political blowback.

It's a remarkable feat given that the Prime Minister's government counselled B.C. and Ontario to embrace harmonization and then bankrolled its adoption. Ottawa is paying B.C. $1.6-billion and Ontario $4.3-billion in compensation to ease the transition.

Economists say Ottawa's cash was crucial to persuading Mr. Campbell and Mr. McGuinty to adopt the HST, which merges the federal GST and provincial sales tax into a single levy that applies to the same goods and services. The compensation helps provinces cope with an expected revenue dip in the short term under the new regime.

“I doubt harmonization would have proceeded at this time without the federal support,” said Toronto Dominion Bank chief economist Don Drummond, who helped persuade Ontario to make the shift.

The HST's economic appeal is that it is a tax break for business and improves the investing climate for provinces that adopt it. What's politically perilous is that it shifts some sales-tax burden to consumers from business, and, in the short term at least, hikes costs for consumers. (Competitive pressure is expected to force business to pass on much of the tax savings over time.)

Public opinion is sour on the HST. A Nanos Research poll earlier this year found just 23 per cent of Ontarians back it.

But only the premiers are paying a political price – Mr. Campbell apparently far more so than Mr. McGuinty. By mid-September, only four months after winning a third-straight election, the B.C. Liberal government's public support had fallen to record lows, behind the provincial NDP, in the polls.

Few voters have yet made the connection that the Harper Tories played so pivotal a role in the HST shift, pollsters say, because it fell to Mr. Campbell and Mr. McGuinty to announce the changes.

Not surprisingly, the Conservatives are keeping a low profile as the backlash rages. They dismiss criticism by pointing out that it was the provinces that ultimately decided to adopt the HST.

“Our place is merely to facilitate decisions that have already been made by provincial legislatures,” federal Industry Minister Tony Clement recently told the Commons.

Tories defend the $6.2-billion compensation, saying it's not inducement but fair treatment: giving Ontario and B.C. money for switching, just as Ottawa funded a 1997 move to the HST in Atlantic Canada.

Still, it's an awkward issue for the Tories, who pride themselves on cutting federal consumption taxes – the GST – by 2 points.

Pollster Nik Nanos said that, while the federal Tories have avoided the backlash so far, voter anger will grow as the July 1, 2010, deadline for the HST nears.

“Issues that touch people's lives tend to drive voting behaviour, and the Conservative policy, for a lay person, is not consistent with what they would expect the Conservative government to do.”

The controversy would appear to be tailor-made for the Opposition Liberals. One former Tory MP speculated privately that the party would be campaigning hard against the HST if it was sitting on opposition benches.

But Liberal Leader Michael Ignatieff has found himself frustrated in efforts to attack the Tories and has pulled his punches. A campaign against the HST would hurt Mr. Ignatieff's Liberal brethren in the McGuinty government, so the federal leader has limited himself to criticizing the timing of the move, while assuring Ontario that a Liberal government would still pay the province compensation.

However, the federal NDP, with no realistic chance of attaining power, has led opposition to the HST in Parliament, hoping to score points against the Tories, a party that it competes head to head against in many B.C. ridings.

Mr. Nanos predicts the pressure will grow on Mr. Ignatieff to break with Mr. McGuinty and oppose the HST, especially if the Liberal Leader's political fortunes don't improve. “At a certain point, your political survival instinct has to kick in,” he said. “I wouldn't underestimate the power of this as a political issue, especially when people are still jittery about the economic recovery.”