A couple of weeks ago, the NDP suggested removing the GST from heating bills, and I bemoaned the idea as just another example of a policy designed to fit a communications strategy instead of the other way around. I was hoping that the proposal would do the decent thing and go away quietly, but the NDP has apparently given it a budget generous enough to air some ads. If you judge policies by how effective its communications strategy is, the initial reviews are positive.

The rest of this post is for the dwindling band of citizens who adhere to the quaint notion that politics should be about policies.

Much of what follows is based on points raised and developed by UBC's Kevin Milligan here on WCI, on twitter and elsewhere on the internet. He characterises the proposal as a misdiagnosis: the NDP is prescribing a price solution for an income problem. The notion of affordability only makes sense as an income problem: no-one seems to be worried about the ability of high earners to pay their heating bills.

When you see the problem as one of incomes, the remedy is clear: give money to low-income households. Happily, there is already a mechanism in place for alleviating income problems: the GST/HST rebates. If, in the view of the NDP, these payments are too small, then the solution is to make them more generous.

If heating costs were something that were incurred mainly by low-income households, then the gains would be concentrated mainly among this group. But that's not the case. As Kevin notes, expenditures on heating increase with income:

Since expenditures on home heating increase with income, most of the revenues sacrificed by the NDP tax cut will go to those with higher incomes.

It could be argued that the gains for low-income households are proportionately greater, because the inequality in income is greater than the inequality in benefits. But using proportional gains as a criterion strikes me as setting the bar too low: even George W. Bush's tax cuts manage to make it over this hurdle.

Applying a price solution only makes sense if there's a price problem, and a convincing case can be made that markets are mis-pricing heating. Unfortunately, the case is based on negative externalities in the form of greenhouse gas emissions (remember them?). Environmentalists have spent the past couple of decades trying to persuade policy-makers of the merits of increasing the cost of GHG-emitting activities, without much apparent success.

If we're concerned about the income problems associated with home heating costs – the affordability issue – the proper remedy is an income solution: give more money to low-income households. If we're concerned about whatever price problems there may be, the proper remedy involves increasing the cost of GHG-emitting home heating. And if we're concerned with both, we can implement both remedies simultaneously: increase the cost of home heating and give more money to low-income households.