Liberal Leader Michael Ignatieff has come under fire from some members of his own party for supporting the federal government's plan to enable Ontario and British Columbia to harmonize their retail sales taxes with the GST.
At first glance, it might seem the critics have a point. Taxes are never popular. The way some Liberal MPs see it, it would be smarter to let Prime Minister Stephen Harper carry the can for helping to implement the new harmonized sales tax in Ontario and B.C.
But the critics are wrong. In agreeing to support the Conservative government's HST legislation, Mr. Ignatieff made the right choice – for three very sound reasons.
First, the HST bill is fully consistent with long-standing federal Liberal Party policy. After all, in the mid-1990s, it was Jean Chrétien's government that persuaded Nova Scotia, New Brunswick and Newfoundland and Labrador to harmonize their provincial sales taxes with the GST, just as Ontario and B.C. are proposing to do now.
The Liberal government's policy back then was the same as the Conservative government's today: to encourage the remaining provinces with retail sales taxes to harmonize as a means of improving Canada's ability to compete internationally. For Liberal MPs to turn around and vote against the HST-enabling legislation would therefore represent a significant policy flip-flop.
The second reason Mr. Ignatieff's position makes sense is that retail sales tax harmonization is fundamentally a matter of provincial jurisdiction. The duly elected governments of Ontario and B.C. have decided to reform and streamline the system by which they tax the sale of goods and services. Federal legislation is required to make it happen and to compensate consumers during the transition period. Beyond that, it should be left to the provinces to determine what is in their respective interests.
Ontario Premier Dalton McGuinty and B.C. Premier Gordon Campbell have each taken a political risk by proposing harmonization; they have done so because they believe it will promote increased business investment and job creation. If they're wrong, they and their governments will undoubtedly pay the price in terms of voter support. That's as it should be, and it's not the job of federal MPs to second-guess them.
The third reason the HST implementation bill deserves support is that it's good for Canadian competitiveness. Traditional retail sales taxes raise costs and discourage new investment by taxing business inputs, often many times before a final sale. In contrast, value-added taxes such as the GST and HST are far more efficient because they effectively strike only once, when a good or service is purchased for final use. Little wonder, then, that more than 130 countries have already adopted value-added taxes in lieu of old-style retail sales taxes. In today's world of complex supply chains, no other approach makes sense.
In announcing the B.C. government's sales tax reform plan earlier this year, Mr. Campbell called harmonization “an essential step to make our businesses more competitive, encourage billions of dollars in new investment, lower costs on productivity and reduce administrative costs to B.C. taxpayers and businesses.”
Mr. McGuinty has been equally forceful in defence of what he acknowledges is a controversial measure. “As a population or an economy, we can no longer escape these difficult choices about how to strengthen our economy,” he told an interviewer recently. “One of those choices was how to modernize our tax system. … It is not easy, but I know we need to do it.”
Clearly, Mr. Ignatieff came to the same conclusion. It was the right decision, and he deserves his party's full support.
John Manley, a former deputy prime minister of Canada, is president-designate of the Canadian Council of Chief Executives.
