In B.C.'s HST debate, passion trumps common sense

Today we come not to bury Gordon Campbell, but to praise him. Somebody has to.

Mr. Campbell has been British Columbia's Premier for the past nine years. That in itself is an achievement, given the track record of those who've held the office. There was Glen Clark (resigned amid a criminal investigation, 1999), and before him Mike Harcourt (resigned amid a criminal investigation that involved his party, 1996), and before him Bill Vander Zalm (resigned because of a conflict-of-interest probe that led to criminal charges, 1991).Yet Mr. Campbell is now treated as the biggest scoundrel of them all.

His Liberal Party's standing is as far underwater as BP's leaky Macondo well and his personal popularity is roughly equal to that of Tony Hayward at a Louisiana shrimpers' convention. Last week, one of his cabinet ministers resigned in protest and Mr. Vander Zalm, of all people, is now throwing mud in the Premier's direction, calling him an "elected dictator."

And for what? Because Mr. Campbell dared to do the right thing. His government's decision to scrap B.C.'s antiquated provincial sales tax in favour of one that's harmonized with the federal sales tax may have turned the Premier into the pariah-of-the-moment. It's also one of the best things he has done since taking office. The HST's critics, an alliance of knee-jerk populists, political opportunists and the financially clueless, ought to go jump in the Georgia Strait. Better yet, they should take a basic economics course.

Rarely has a good idea been so misunderstood. Rarely have the correct intentions - to make B.C. a more competitive place, to make it cheaper to invest, to make jobs - been so twisted into something else by people who don't know what they're talking about. But it does require some explanation, so we'll walk through it very slowly, for the benefit of Mr. Vander Zalm and his comrades-in-arms.

Right now in B.C. the consumer is charged two taxes on most items: there's a 5 per cent federal goods and services tax plus a provincial sales tax of 7 per cent. On July 1, that will change to a single, harmonized tax of 12 per cent. The rub, of course, is all sorts of items that are now exempt from the provincial tax will have the HST applied to them. The tax on a massage, for instance, will rise to 12 per cent from 5; same with a funeral or a haircut or a lawyer's fee. (A similar process will take place in Ontario - except at a 13-per-cent rate - to replace the current five-plus-eight.)

This is why the HST gets a rap as just another effort by politicians to reach into the consumer's pocket. In fact, it's the current provincial sales tax, both in B.C. and Ontario, that qualifies as a grubby tax grab. Those taxes apply not just at the retail cash register, but to things that companies buy to run their businesses, including, in most cases, crucial equipment and supplies. The government taxes at every step. Ultimately, the consumer pays for it anyway. It's just that all that tax is buried in the price of what you're buying.

But the old PST does something else that's even more harmful. It drives up the real cost of making an investment. The two-tax system is one of the major reasons why the effective tax rate on capital is much higher in B.C. and Ontario than it is in places like New Brunswick and Nova Scotia that have a single, harmonized tax. The result is less investment, which in the long run means fewer jobs. By bringing in the HST, Mr. Campbell and Ontario Premier Dalton McGuinty are chopping the cost of building a plant or a warehouse or a retail store in their provinces. Only good things can come from that. You will have a hard time finding a credible economist who disagrees with this point (TD's Don Drummond, former Bank of Canada governor David Dodge and the University of Calgary's Jack Mintz, one of the country's leading experts on taxation, are three of the many economists who back the HST).

The trouble for Mr. Campbell is it is nearly impossible to prove the absence of something: how do you show that there are fewer businesses operating in B.C. - paying wages and employing people - because of the absurdities of the provincial sales tax? It's too abstract. The government commissioned Mr. Mintz to do a study on the subject; he calculated the HST policy will be such a boon for investment that it will result in 113,000 new jobs in the province by 2020.

The anti-HST campaigners just toss this stuff aside, or ignore it. But if they really believe the HST will be so awful, perhaps they could at least brush up on their history. In the late 1980s, when the Mulroney government brought in the GST, its critics claimed it would do long-term damage to the economy. It probably did make the early 1990s recession a little bit worse. But within a few years, Canada was beginning a 17-year economic expansion and a historic boom in employment. Paul Martin was balancing the budget with the help of GST revenue, income taxes were cut and Ottawa began repaying debt.

How did that happen? Don't expect the anti-HST camp to try to explain it. They're too busy mouthing vague platitudes about democracy, as though Mr. Campbell seized power in a military coup, and whining about paying a couple of extra bucks at the barber shop.