A few weeks ago, Mike Moffatt wrote an op-ed that ran in the Ottawa Citizen and several other PostMedia papers to the effect that there simply isn't the will on the part of 99% of the population to do much about inequality: if there were, there'd be more popular support for the sort of tax-and-redistribution measures that would actually be effective in reducing inequality. Instead, we get stuff like this:
Ontario’s two opposition parties appear ready to unite to hand the McGuinty Liberals an embarrassing blow just days into a new session.
Progressive Conservative leader Tim Hudak said his party will support an NDP proposal to take 8% off the harmonized sales tax (HST) on home heating bills.
Here is the distribution of heating expenditures (electricity plus natural gas) in Ontario by income quintile, according to the 2009 Survey of Household Spending:
| Quintile | Income range | Average income | Income share | Expenditure share |
|---|---|---|---|---|
| Lowest | 0 – $30,000 | 19,831 | 4.9% | 10.3% |
| Second | $30,000 – $50,000 | 40,117 | 9.9% | 15.0% |
| Third | $50,000 – $75,685 | 62,353 | 15.4% | 19.6% |
| Fourth | $75,685 – $115,250 | 94,372 | 23.3% | 24.4% |
| Highest | $115,250 - | 187,742 | 46.4% | 30.7% |
Removing the HST on heating will cost a certain amount of money – apparently on the order of $350m. The share of those foregone revenues that will go to households in the highest income quintile is almost three times the share that will go to the low-income households that the measures' proponents loudly insist are its focus. More than half of the money will go to people in the top 40%; only a quarter will go to the bottom 40%. As redistributional measures go, it's more progressive than offering free yacht maintenance, but not as progressive as actually giving more money to those with lower incomes. (I don't take seriously counter-claims to the effect that high-income households deserve more public money because they spend more on heating.)
Here's something I wrote at Economy Lab during the federal election:
[T]hese days, the three major parties build their platforms on the following questions:
1) What are the socio-economic groups that can be persuaded to vote for us?
2) How can we get their attention?
This trend has had a homogenizing effect on the platforms. Since there are only so many categories that are in play, the parties end up chasing the same markets with similar boutique measures.
This has to be the reasoning behind this NDP-OPC joint venture. They both ran on interchangeable exempt-something-or-other-from-the-HST platforms. (I can never remember who promised to exempt what and can't be bothered to look it up.) And it's clear that both parties ran on those points because they played well with focus groups.
But let's put this in the broader perspective of the OWS protests. All of a sudden, people are showing a keen interest in inequality, and this should be the natural territory for the NDP. And this is the best they can come up with? A regressive, focus-group-driven gimmick that the OPC will cheerfully sign on for?
It probably is. If focus groups liked the idea of (say) increasing the HST credit – a measure that would actually channel public money to the bottom part of the income distribution – then maybe we'd see political parties campaigning on it.
(Another explanation that cannot be ruled out is that the ONDP has really terrible analytical skills and never thought to check if increasing the HST credit would be a vote-winner.)
And look at response from the Liberals. Did they reject the idea because it shoveled free public money to the top of the income distribution? No, they did not:
“Taking money off of home heating doesn’t create jobs.”
Even if they really believe that the measure was a) regressive and b) a bad thing because it was regressive, the Liberals also know from their focus groups that there's no way that this would be a winning argument in the court of public opinion. The only response that would play well is to invoke the "jobs" mantra.
Mike took a certain amount of flak for pointing out that although Canadian voters may be willing to talk the inequality talk, they clearly are not willing to walk the inequality walk. But I think that the burden of proof is on those who would claim otherwise.
Worthwhile Canadian Initiative 
Bob Smith:
One issue in particular is from a legal perspective the HST is essentially the federal GST as part of the Federal Excise Tax Act imposed at a higher rate of 13% compared to the base rate of 5% imposed on Goods and Services with a place of supply within the province of Ontario. The feds then through essentially a tax rental agreement with the province transfering an “estimated” portion on total nationwide GST/HST revenues based on Ontario’s share of national consumption and the effect of the higher rate imposed on Ontario PofS purchases. Thus a provincial administered rebate under provincial legislation really not have anything to do with the actual tax in a legal sense so it hard to argue in my mind that it is anything other than a direct approriation of funds. Note as I have pointed out before there is nothing technically preventing the province from doing this and other HST participating provinces have already done it I don’t think though it can be done through Private Member’s legislation. I do note also at the start of every session of Federal parliament there is usually some Federal NDP MP that proposes this same thing at the Federal level which would actually be able to modify in theory the Federal ETA.
I am happy you brought up the Constitution because I had only been looking at this from the standpoing of the Legislature’s standing orders.
Not having said much about the PC’s rational for doing this I do have note that I heard a rumor once that Mike Harris and Ernie Eves have had much different views on the HST going back to their years in government together with Harris strongly favoring and Eves strongly against the HST points of view that I guess both still hold to this day. Remember the 1995 CSR platform actually called for hamornizing the PST and GST. What I found really unbelievable is Eves was actually in favor of a single federal provincial sales tax structure but thought the Feds should get rid of the GST and introduce a federal equivalent of the Ontario PST which is almost Joe Clarkian in its idiocy(I am pretty sure I once heard some place that Eves and Clark have been quite close going back to the 70s). I do know that it IS well known that Harris wanted the open the electricity market to competition while Eves shut it down after he became premier(as you discussed earlier)and Eves in the 2003 election wanted to make home mortgage interest deductible(More Joe Clark policies) and to take over provincial collection of personal income tax. The interesting thing I heard is that during these fights in cabinet during the last PC government Flaherty in provincial cabinet backed Harris’ pro position on the HST so his support as a Federal Minister of Finance is not at all contradictory. Thus I can sympathize with the PC party’s predicament when you have two people as important to the party as Harris and Eves fighting on a major policy issue for many years.
“Thus a provincial administered rebate under provincial legislation really not have anything to do with the actual tax in a legal sense so it hard to argue in my mind that it is anything other than a direct approriation of funds.”
Agreed, it’s only a tax “reduction” in that, administratively, the feds will authorize suppliers to rebate the tax at the point of sale, rather than remitting it to the province to be rebated. But the actually authorization of the rebate would be under provincial law and, if compliant with the Ontario-Canada CITCA, the feds would amend the ETA (or more likely a regualtion thereunder) to authorize suppliers to pay the rebate. It isn’t a tax cut (at least, not legally).
It’s interesting that you mentioned the possibility of the federal government unilaterally modifying the HST. Strictly speaking any amendment to the GST tax base would do it. I’ll have to check what the CITCA provisions are governing amendments to the GST tax base. I know there are limits to how much the provinces can vary the HST tax base from the GST base, but I haven’t thought if there are any restriction which bind the feds vis-a-vis the provinces.
It must be said, Hudak is decidedly from the Harris wing of the PC party, and Ernie Eves’ coat-tails in the PC party were pretty short (I hadn’t quite appreciated the full extent of his idiocy, but had some inkling – despite my blue blood, I voted green in 2003 out of spite). I don’t know if there’s much substantive policy dissension for the PCs on HST, after all PST harmonization was a key part of the policy right up until, well, until the PST was harmonized. The Tories’ problem is that the Liberals introduced the HST and they want to be able to beat them over the head with the issue, without doing something stupid like actually repealing it (which at least makes the Tories slightly smarter than their NDP friends in BC). I had figured they would use gas taxes as the hammer to beat the Liberals with (i.e., that they would take the position that since gas is already subject to a different provincial tax, the province shouldn’t charge HST on top of it), but it looks like they’ve chosen home heating as their one issue to beat the Liberals with.
Personally, I think the Tories should stop carping about HST, if only because its a criticism that’s undermined by the fact that the Tories won’t repeal it and have said as much. Instead, rather than criticizing McGuinty for the one good and important policy initiative he’s undertaken, they should start damning him for all the dumb things he’s done.
There actually are two types of rebates under the HST. The Feds will administer them at the point of sale but only up to five percent of the GST base which generally is not enough for residential energy(This is how things such as books and meals under $4 dollars are done). Up to now what other provinces have choosen to do that have done is having sellers of heating fuel apply to the province on behalf of their residential customers in bulk for the rebate and then apply it to their customers bills in bulk at the end of their billing cycle. I have a link below that explain how it works in Newfoundland and Labrador. I love the “rebate is available to all residents regardless of income.” I am trying to look for the actual Newfoundland legislation but I haven’t found it yet.
http://www.fin.gov.nl.ca/fin/energyrebate/
Now if the Federal govt were to reduce the GST base. As I have read the CITCA agreement the Feds would owe the participating provinces compensation for lost revenue from the reduction of the corresponding provincial HST(PVAT) base in perpetuity. Now I suppose as the CITCA is not a true legal contract and each side does have the ability to termininate it the Feds could simply refuse to pay having said that I think you would have a Danny Williams Atlantic Accord situation quite quickly. Note as I read the agreement the Feds would even owe compensation for an item like heating oil to provinces that have choosen to rebate under there own legislation and administration.
The other point I’ll make is that the five year “poison pill” to keep the HST is actually not as relevant as some think. It used to take almost 1,300 people to collect the old PST. By Febuarary all of these people will be working for the Federal government permanently. The provincial offices that these people worked in are going to have there leases terminated or other parts of the provincial government are going to be moved in the occupy the space that formerly held the PST collection department(As they should with all the budget problem the Ontario govt is having). So the idea of going back to the “old system” in five years is complete nonsense just as Eves’ plan to take back PIT collection was back in 2003. Having said that the province is somewhat over the barrel in terms in tax policy to the Feds although its always been like that with income tax(I suspect the Drummond report will recommend McGuinty try to get the feds to agree to upload provincial Sin tax collection). I also noticed recently that Dwight Duncan mused about going back to 1950s style tax rental agreements for Corporate Income Tax with the federal govt which I found interesting because the Ontario govt of that day wanted to get of the TRA’s over the opposition of a lot of the other provinces.
The part I am missing is how this $350 million is circulated back into the hands of the poor?
If 55% going to the top 40% is egregious inequality, how then can we justify the home renovation tax credit?
Given that it’s only going to home-owners, that pretty much ensures that a very small percentage is going to the poor.
Are we using this extra $350 million to increase ODSP or Ontario Works?
Or is this $350 million being used to help keep corporate taxes down?
It’s not enough to say that this hurts the wealthy more than the poor. If it hurts the poor – period – then the NDP has every right and responsibility to fight it.
how then can we justify the home renovation tax credit?
We can’t.
Jariax: how then can we justify the home renovation tax credit?
Stephen: We can’t.
At least not on equity grounds. There might be other grounds for defending it such as stimulus. The 2009 version could probably be justified solely as an enforcement tool to catch contractors who had been evading income tax and GST/HST. The upshot of the home renovation tax credit was that, in order to claim it, you needed a receipt, and taxpayers were given an incentive to forward that receipt to the CRA, creating a wonderful paper trail to catch dishonest contractors.
I have been told that the CRA used the home renovation tax credit as a springboard to audit contractors who, mysteriously, saw sharp increases in their reported income or GST/HST remittance in 2009 (or whose income and remittance didn’t match the home renovation tax credit claims). Sure, it cost the fisc. 15% of the first $10k of renovations, but that cost would be offset to a degree by increased compliance (to say nothing of (a) catching contractors for non-compliance in prior years or (b) giving CRA a baseline against which to assess non-compliance in future years). As fiscal policy goes, that tax credit was brilliant (relatively cheap, quick stimulus, with long term benefits for tax enforcement), and I wouldn’t be surprised if the fisc. didn’t make money on that tax credit.