The HST bogeyman

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Okay, I get it. Everyone hates taxes. But there are taxes and then there are taxes – a distinction that certain business groups and assorted advocates routinely refuse to make as they stir their various pots of public outrage.

Here’s the background, courtesy of Chris Morris, who works the Legislature Bureau of the Saint John Telegraph-Journal: “According to numbers obtained from the provincial government through a right to information request, the (Canadian Taxpayers Federation) said (last) Monday promised tax credits won’t cover the additional costs for average working families.”

She continued: “The harmonized sales tax in New Brunswick will increase by two percentage points on Friday, Canada Day, to 15 per cent from 13 per cent. Kevin Lacey, Atlantic director of the taxpayers federation, a not-for-profit citizens group that lobbies for low taxes, said figures obtained from the Finance Department show that of the 331,309 households in the province, 225,361 – or 68 per cent – will pay more tax even after HST credits are factored in.”

As for Mr. Lacey, here’s what he told Ms. Morris in an interview: “If you are an average, middle-class working family, you are still going to pay big dollars under this HST increase. That is on top of income tax increases brought in three years ago. New Brunswick is going in the wrong direction with regard to taxes. Taxpayers are shelling out more and more every year.”

I understand that Mr. Lacey has a job to do, and more power to him. But a couple of things occur.

Firstly, the income-tax hike in New Brunswick came after a sustained period of income-tax reductions. So, as economists like to quip, it’s a zero-sum game. That said, taxes on income must be the most inequitable way possible to separate a middle-class family from its money.

The poor pay little or no taxes on their earnings. The rich have, at their disposal, plethora schemes (legal and otherwise) to avoid levies on their fat hauls. It’s the poor slobs in the middle (meaning, most of us) who bear the brunt of satisfying the taxman.

Secondly, virtually every economist in the world agrees that taxes like the HST, which is a consumption claw-back, is vastly more efficient and fair than an income one, as long as the former is not regressive – that is, it doesn’t hit the poor disproportionately hard, as they tend to spend most of what they earn.

As Laval University economist Stephen Gordon wrote in the Globe and Mail a few years ago, “The basic idea comes down to the role of taxes in determining the rate of return on investment. Higher returns generate higher levels of investment and – as investment accumulates – higher levels of productive capacity. That increased capacity in turn generates higher levels of output, employment and wages.”

On the other hand, he noted, income and corporate taxes reduce rates of return to the point where stuff doesn’t get done and people don’t get employed. Consumption taxes, meanwhile, levels out the playing field: You pay on what you buy. Again, though, they only work fairly if those who have little money to purchase anything qualify for timely rebates.

If the middle class does exist in New Brunswick (and the jury is still deliberating that point), Mr. Lacey and his ilk should advocate for rollbacks in taxes on income, not cuts to a regulated, humanely applied regime of consumption levies.

Even more useful might be pushing for a system that does not slip into regressive HST charges on the very people the Taxpayers Federation represents.

After all, some taxes are better than others.

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