Yellow Fever
September 3rd, 2010, 06:28 AM
B.C. government adopted HST despite warnings of negative impact on the economy
13 months after Freedom of Information request, heavily censored documents reveal discussion surrounding harmonized sales tax
By Jonathan Fowlie, Vancouver Sun September 2, 2010
VICTORIA — The B.C. Liberal government pushed ahead with the harmonized sales tax despite warnings from high-level officials that it could lead to at least five years of increased unemployment, lower wages and depressed productivity.
“While the long-term economic gain [of the HST] is relatively clear, harmonization will cause a short-term loss in GDP and unemployment,” says a briefing note prepared by the top official in B.C.’s tax policy branch for Finance Minister Colin Hansen.
“[A C.D. Howe Institute] study suggests that it may take five or more years before the impact on GDP is positive and even longer for real wages and job numbers to recover,” the note said.
“Given current economic conditions, this could be a concern.”
The revelation came Wednesday in documents obtained under the Freedom of Information Act.
It prompted NDP leader Carole James to say the government had not been honest with British Columbians about when it began considering the HST.
The documents reveal that top bureaucrats in Victoria were discussing a possible move to the HST as early as March 2009 — a month and a half before the provincial election and far earlier than the Liberal government has ever acknowledged.
Premier Gordon Campbell and Hansen have repeatedly said the HST was not on the government’s “radar screen” until after the May 12, 2009 provincial election.
Campbell told the legislature that officials in Victoria were not authorized to begin negotiations until late May 2009, after Hansen first discussed the issue with federal Finance Minister Jim Flaherty.
“We couldn’t even launch into that discussion ... at the officials level until we’d informed the federal minister of finance that was taking place,” Campbell told the legislature last November.
“Only when that notification had been made were our officials in a position where they could even start to discuss it,” Campbell said.
Hansen made similar remarks about when discussions began, and told the legislature in response to a question by NDP finance critic Bruce Ralston last Nov. 23 that there was absolutely no discussion on the tax until the end of May.
“By discussion,” Ralston told Hansen, “I mean personal contact, face-to-face, or any exchange of memos at the deputy minister level or through the e-mail network or anything. There’s simply no discussion at any level between the minister of finance, his officials and the premier and his office and his officials about the HST between January, when it was first raised publicly in Ontario, and the end of May.
“Is that the minister’s position?”
“That is correct,” Hansen answered.
The documents released Wednesday show high-level bureaucrats in Victoria and Ottawa spoke about the HST on March 26 of last year, the day Ontario formally announced its intention to move to a harmonized tax.
It was not clear from the documents exactly what was discussed.
Hansen said Wednesday he did not know at the time he answered Ralston that those communications had taken place.
“I was actually surprised when I read through this just how much back and forth there is at the officials level,” he said in an interview Wednesday.
“I was surprised to go through and read the extent of a lot of the back and forth with Ottawa that was obviously there.”
James said that “from the start the premier, the finance minister, B.C. Liberal MLAs, have been saying over and over to the public the HST was not on the radar screen before the election.
“It’s very clear from these documents it was on their radar screen. They were looking at options, they were exploring the HST. It’s another betrayal of trust for the public,” she said.
James said the government wasn’t being honest with British Columbia, and that the information about a possible short-term hit to the economy shows it was wrong to bring in the HST during a recession.
“In reading that information it was pretty clear it was going to have a damaging impact on our economy,” James said.
“I don’t think an HST — a tax that’s going to slow down our economy — is any kind of good economic management when you want to get yourself out of a recession.”
Hansen insisted that the discussions reflected in the documents were initiated by bureaucrats, and were not directed by the political level of government.
“None of these inquiries were undertaken at the request of anybody at the political level,” he said.
“Ministry officials took it upon themselves to make these inquiries ... as they have done over the years going back to the mid-1990s,” Hansen said.
The documents include a briefing note prepared by the B.C. government for Campbell’s meeting with provincial premiers on Jan. 16, 2009.
“British Columbia recognizes the potential economic benefits of harmonization but continues to have concerns,” that document concluded.
A more comprehensive briefing note was prepared for Hansen on March 12 of last year, just ahead of Ontario’s official announcement of a move to the HST.
“In light of Ontario’s recent public statements regarding harmonization ... the British Columbia government will likely be asked about its position on harmonization,” the briefing note says.
“Government may wish to consider how to respond to these questions.”
Hansen said Wednesday he recalled skimming the briefing note, but insisted he did not seriously consider the HST until after the election.
“The ministry was obviously looking at HST related issues but it is not something that ever went forward,” he said.
“It obviously came to my desk. It never went any farther because it was not something that was part of what we were looking at.”
That same briefing note also outlined the concerns about the potential short-term economic consequences of the HST on B.C.’s GDP, wages and levels of unemployment.
It cited a C.D. Howe study of the possible effects of an HST in Ontario, which concluded that GDP could dip for five years as a result of the new tax, and that employment could fall for even longer.
Hansen said Wednesday that was old information, and that B.C. was able to negotiate better terms for the HST that lessen the impacts of potential short-term pain.
“Given what we were able to negotiate in terms of the increased flexibility and the increased benefits for British Columbia, the benefits significantly outweigh the downsides,” he said.
“It’s not as big an issue,” he said, adding that tax policy specialist Jack Mintz, a former head of the C.D. Howe Institute who worked on the study, had told B.C. the benefits would come much quicker than the institute had projected.
The documents show that on May 11, 2009 — the day before the provincial election — the executive director of B.C.’s tax policy branch wrote to his counterpart in Ottawa asking if B.C. could implement an HST with a provincial rate other than eight per cent.
“Am I correct in assuming a province could now start at a rate other than 8%?” Glen Armstrong wrote in an e-mail to Louise Levonian, assistant deputy minister in the federal tax policy branch.
The provincial government has said one of the reasons it moved to the HST was the new flexibility to set the provincial portion of the rate at seven per cent, as opposed to the higher level previously proposed by Ottawa.
jfowlie@vancouversun.com
Read more: http://www.vancouversun.com/news/government+adopted+despite+warnings+negative+impact+economy/3470614/story.html#ixzz0yRAtZtov
13 months after Freedom of Information request, heavily censored documents reveal discussion surrounding harmonized sales tax
By Jonathan Fowlie, Vancouver Sun September 2, 2010
VICTORIA — The B.C. Liberal government pushed ahead with the harmonized sales tax despite warnings from high-level officials that it could lead to at least five years of increased unemployment, lower wages and depressed productivity.
“While the long-term economic gain [of the HST] is relatively clear, harmonization will cause a short-term loss in GDP and unemployment,” says a briefing note prepared by the top official in B.C.’s tax policy branch for Finance Minister Colin Hansen.
“[A C.D. Howe Institute] study suggests that it may take five or more years before the impact on GDP is positive and even longer for real wages and job numbers to recover,” the note said.
“Given current economic conditions, this could be a concern.”
The revelation came Wednesday in documents obtained under the Freedom of Information Act.
It prompted NDP leader Carole James to say the government had not been honest with British Columbians about when it began considering the HST.
The documents reveal that top bureaucrats in Victoria were discussing a possible move to the HST as early as March 2009 — a month and a half before the provincial election and far earlier than the Liberal government has ever acknowledged.
Premier Gordon Campbell and Hansen have repeatedly said the HST was not on the government’s “radar screen” until after the May 12, 2009 provincial election.
Campbell told the legislature that officials in Victoria were not authorized to begin negotiations until late May 2009, after Hansen first discussed the issue with federal Finance Minister Jim Flaherty.
“We couldn’t even launch into that discussion ... at the officials level until we’d informed the federal minister of finance that was taking place,” Campbell told the legislature last November.
“Only when that notification had been made were our officials in a position where they could even start to discuss it,” Campbell said.
Hansen made similar remarks about when discussions began, and told the legislature in response to a question by NDP finance critic Bruce Ralston last Nov. 23 that there was absolutely no discussion on the tax until the end of May.
“By discussion,” Ralston told Hansen, “I mean personal contact, face-to-face, or any exchange of memos at the deputy minister level or through the e-mail network or anything. There’s simply no discussion at any level between the minister of finance, his officials and the premier and his office and his officials about the HST between January, when it was first raised publicly in Ontario, and the end of May.
“Is that the minister’s position?”
“That is correct,” Hansen answered.
The documents released Wednesday show high-level bureaucrats in Victoria and Ottawa spoke about the HST on March 26 of last year, the day Ontario formally announced its intention to move to a harmonized tax.
It was not clear from the documents exactly what was discussed.
Hansen said Wednesday he did not know at the time he answered Ralston that those communications had taken place.
“I was actually surprised when I read through this just how much back and forth there is at the officials level,” he said in an interview Wednesday.
“I was surprised to go through and read the extent of a lot of the back and forth with Ottawa that was obviously there.”
James said that “from the start the premier, the finance minister, B.C. Liberal MLAs, have been saying over and over to the public the HST was not on the radar screen before the election.
“It’s very clear from these documents it was on their radar screen. They were looking at options, they were exploring the HST. It’s another betrayal of trust for the public,” she said.
James said the government wasn’t being honest with British Columbia, and that the information about a possible short-term hit to the economy shows it was wrong to bring in the HST during a recession.
“In reading that information it was pretty clear it was going to have a damaging impact on our economy,” James said.
“I don’t think an HST — a tax that’s going to slow down our economy — is any kind of good economic management when you want to get yourself out of a recession.”
Hansen insisted that the discussions reflected in the documents were initiated by bureaucrats, and were not directed by the political level of government.
“None of these inquiries were undertaken at the request of anybody at the political level,” he said.
“Ministry officials took it upon themselves to make these inquiries ... as they have done over the years going back to the mid-1990s,” Hansen said.
The documents include a briefing note prepared by the B.C. government for Campbell’s meeting with provincial premiers on Jan. 16, 2009.
“British Columbia recognizes the potential economic benefits of harmonization but continues to have concerns,” that document concluded.
A more comprehensive briefing note was prepared for Hansen on March 12 of last year, just ahead of Ontario’s official announcement of a move to the HST.
“In light of Ontario’s recent public statements regarding harmonization ... the British Columbia government will likely be asked about its position on harmonization,” the briefing note says.
“Government may wish to consider how to respond to these questions.”
Hansen said Wednesday he recalled skimming the briefing note, but insisted he did not seriously consider the HST until after the election.
“The ministry was obviously looking at HST related issues but it is not something that ever went forward,” he said.
“It obviously came to my desk. It never went any farther because it was not something that was part of what we were looking at.”
That same briefing note also outlined the concerns about the potential short-term economic consequences of the HST on B.C.’s GDP, wages and levels of unemployment.
It cited a C.D. Howe study of the possible effects of an HST in Ontario, which concluded that GDP could dip for five years as a result of the new tax, and that employment could fall for even longer.
Hansen said Wednesday that was old information, and that B.C. was able to negotiate better terms for the HST that lessen the impacts of potential short-term pain.
“Given what we were able to negotiate in terms of the increased flexibility and the increased benefits for British Columbia, the benefits significantly outweigh the downsides,” he said.
“It’s not as big an issue,” he said, adding that tax policy specialist Jack Mintz, a former head of the C.D. Howe Institute who worked on the study, had told B.C. the benefits would come much quicker than the institute had projected.
The documents show that on May 11, 2009 — the day before the provincial election — the executive director of B.C.’s tax policy branch wrote to his counterpart in Ottawa asking if B.C. could implement an HST with a provincial rate other than eight per cent.
“Am I correct in assuming a province could now start at a rate other than 8%?” Glen Armstrong wrote in an e-mail to Louise Levonian, assistant deputy minister in the federal tax policy branch.
The provincial government has said one of the reasons it moved to the HST was the new flexibility to set the provincial portion of the rate at seven per cent, as opposed to the higher level previously proposed by Ottawa.
jfowlie@vancouversun.com
Read more: http://www.vancouversun.com/news/government+adopted+despite+warnings+negative+impact+economy/3470614/story.html#ixzz0yRAtZtov