BC Referendum - Right Move, Wrong Target

So, BC voters chose to scrap the HST and to return to the old GST/PST arrangement. Not a good choice if you ask me. I still believe that the HST is a better option - simply because it's a user-end value-added tax that doesn't have the cascading effect of a sales tax. Yes, in just 18 months, there will be no more provincial sales tax on snacks, newspapers and whatever else used to be PST-exempt. But office supplies, industrial equipment and other business expenses except for inventory purchases, will once again have the sales tax portion attached to them - with the obvious consequences for the businesses and for the consumers, to whom the extra expense will be passed.

Unfortunately, the HST idea was poorly implemented. First and foremost - because it extended provincial sales tax to some previously untaxed items - such as the above mentioned snacks, newspapers, basic cable etc. In the Maritimes, people were compensated with lower tax rate - 15% down from 18%(NS), 18.77%(NB) or 19%(NL). But in BC, the idea to lower the HST rate from 12% to 10% was only surfaced at the very last moment. The compensatory income tax reductions turned out to be too minor and all the rebate checks had been all spent, so... The voters chose to bring everything back the way it used to be.

A great victory for grassroots democracy? I'll get back to that, but first it's worth mentioning that BC has at least two other taxes that could have been targeted. One of them, of course is the health tax - which is in fact nothing but a "head tax" of $726 per individual, $1308 per couple or $1452 per family. The HST could have been a great opportunity to just eliminate the "health tax" altogether, which in turn could have been a great way to compensate taxpayers for the broader sales tax base. The advantage of the tax reform would have been clearly visible and there would have been no need for the rebate checks - the ones that the province now has to repay back to the feds. How come nobody in the provincial government ever thought of that option?

Another malicious tax is the carbon tax, the one designed to put a price on the air we breathe carbon dioxide. Applying to every stage of the production process, it has much greater cascading effect than the sales tax, punishing every activity, especially manufacturing and processing. In the end - all those extra costs, resulting from the extra carbon taxes, are passed on to the consumer. But, unlike the HST, carbon tax never reveals itself as an extra amount that one has to add to his purchase; it's a hidden tax, so its effect on prices isn't as noticeable as the one of the HST. When the provincial portion of the harmonized sales tax drives up the price of a snack from $4.20 to $4.48 - that is certainly frustrating. But how many consumers are aware of a hidden tax, without which the price of that same snack could have been even lower than the original $4.20?

So, the outraged taxpayers turned on the tax they considered to be the most annoying. They came together, different forces but with one common goal, they made countless efforts to make the referendum happen and then - to deliver their message to the voters - and they won. They made their voices heard. But they ended up striking down the tax, which was the most honest and, if not the most business-friendly, then at least the least harmful. That move will result in lost economic opportunities for BC. The predicted extra GDP of $2.5B by 2020 is not going to materialize...

But isn't the referendum a great victory if not for grassroots democracy? Didn't it set a precedent that could be used in the future to get rid of other malicious taxes? For now, I doubt it. After making so much effort to hit the wrong target - will people have any energy left to strike the right target, to fight the "health premiums" and the carbon tax? I'm afraid that most may choose to stop there; that once they've won back their PST-free snacks, they won't care about what gets attached to their gas bills, their hydro bills and their tax returns. Yes, the precedent has been set, but I'm afraid that many will be just too tired to take advantage of it again. This weekend, many taxpayers believe they're celebrating victory. But without another referendum, the one that would abolish both the "health premiums" and the carbon tax, this will be merely an effort well wasted.