IT BEGAN WITH A 51-CENT TAX ON A BUCKET OF CHICKEN

A fantasy of the politics of our time

GRATTAN GRAY September 1 1969

IT BEGAN WITH A 51-CENT TAX ON A BUCKET OF CHICKEN

A fantasy of the politics of our time

GRATTAN GRAY September 1 1969

IT BEGAN WITH A 51-CENT TAX ON A BUCKET OF CHICKEN

Like every revolution, this one started smallߞ began, in fact, around suppertime on the afternoon of July 25, 1970, when a $16,000-a-year film editor named Harvey Matthews walked into a suburban Toronto branch of Scott's Chicken Villa and ordered a $3.95 Family Bucket of Kentucky Fried Chicken, with Grecian Bread, Singin' River Beans and a dollop of Col. Sanders' famous Creamy Cole Slaw. The bill came to $5.05, plus 10 percent provincial sales tax. The total was $5.56, and that was when Harvey Matthews snapped.

A fantasy of the politics of our time

'Tm not paying,'' he told the girl.

GRATTAN GRAY

'That'll be $5.56, sir," said the girl.

"The tax," said Harvey, louder. "I'm not paying it.”

"We can't sell you the chicken if you don't pay the tax," said the girl.

The manager came, and he knew his law. If a customer refused to pay, all the restaurant had to do was take his name and notify the government within 10 days. He took Harvey's name and address. Harvey paid $5.05 and walked out with his chicken. He still owed 51 cents in provincial sales tax. Later, he told his wife Fay what he'd done, and tried to figure out why.

Was it because, on the way to the plaza, he'd seen

a road crew of six men leaning on their shovels at maybe $3.50 an hour plus overtime? Or was it because that morning he’d discovered a small leak in the basement of their split level bungalow and knew that, because he still owed $103.68 in back taxes to the Borough of North York, he couldn’t afford to get it fixed?

"Maybe they'll forget about it," Fay said.

They didn't forget. Almost three weeks later,

Harvey received a brisk letter from the Comptroller of Revenue for the Province of Ontario. "It has come to our attention," the letter began, "that monies in the amount of $0.51 are owing, pursuant to the provisions

Gordon Sinclair tears up T-4 form at tax-protest rally, is arrested

'Alore guts and less gouging’

TAXPAYERS' REVOLT continued

of the Ontario Retail Sales Tax Act in connection with a $5.05 purchase by you, to wit, a ‘Family Bucket’ of fried chicken on July 25 last. We assume this is an oversight on your part, and would appreciate your immediate remittance of the above sum.” Flarvey wrote back: “I’m sorry. I’m not paying.”

The next thing Harvey received was an assessment notice, which he decided to ignore. Six weeks later a young police constable came to the door and delivered a summons. Harvey was charged with violation of the Ontario Retail Sales Tax Act, and was liable, “on summary conviction, to a fine of not less than 10 dollars and not more than 1,000 dollars.” A lawyer later told him that the government would ordinarily have garnisheed his wages — all it takes is a form letter signed by a civil servant — but because all Harvey’s income came from free-lance film editing, court proceedings were the only course open to them.

On November 6, 1970, Harvey went to Magistrates’ Court in Toronto’s old city-hall building. He had no lawyer. He heard the magistrate say, “Because of the minor nature of this offense. I’m tempted to impose a suspended sentence.

But the accused has put forward no valid reason for his refusal to pay the tax, so I’m imposing the minimum fine of $10. It’s a citizen’s duty to pay his taxes.” Harvey forgot about what he had planned to say. Instead, he blurted out, “The government’s wasting too much money, that’s all.”

In the corridor outside the courtroom, reporters clustered around him. Next morning a headline on the front page of the Globe and Mail said:

Tax Rebel Fined $10 Attacks Gov’t Waste Harvey was on television the following night. His own eloquence surprised him. “Of course 1 believe in paying taxes,” he told Warner Troyer on CTV’s W5. “But the government — all the governments — should be told that they can’t simply raise taxes indefinitely.”

The following day Harvey received four telegrams of encouragement, 28 letters in similar vein, some on company letterheads but most handwritten, 134 phone calls (only 19 unfavorable), seven requests for interviews. And a bouquet from a woman in Victoria.

In the following 30 days, according to a confidential report presented to Premier Robarts by Stephen Garland,

director of the Retail Sales Tax Branch of the provincial Department of Revenue, the government received 7,422 notifications from firms across the province that various customers had declined to pay the 10-percent sales tax on drinks, restaurant meals and entertainment admissions. The largest sum owing was $3.75. Robarts told Garland not to prosecute for the time being.

On November 15, in London, Ontario — Premier Robarts’ home town — 13 students from the University of Western Ontario were arrested after a demonstration at the Brewers’ Warehouse store on Waterloo Street. They’d tried to buy beer without paying the sales tax of 22 cents per case. When the clerk refused to sell it to them, they lay down on the floor. They told a London Free Press reporter that they were protesting the government’s treatment of Indians.

In Saint John, Charles Van Horne, defeated the previous year in his second bid to reassume leadership of the New Brunswick Conservative Party, announced formation of an organization called THRIFT (Taxpaying Homeowners Resisting Increases in Fredericton’s Taxes) to protest the eight-percent sales tax introduced by Premier Robichaud in 1968. In Toronto, Dr. Morton Shulman, the NDP’s fiery millionaire MPP, formed a similar group called OPT/OUT (Ontarians Protesting Taxes/Ontarians Urging Thrift). Both organizations charged a two-dollar membership fee, offered legal aid to tax resisters, and within their first month attracted a total of nearly 35,000 members.

The movement received an enormous impetus on a chilly Saturday afternoon late in January, when Gordon Sinclair, speaking at an OPT/OUT rally in Toronto’s Nathan Phillips Square, ceremoniously tore up an old T-4 form with the cry, “Let’s have more guts and less government gouging ...” He was arrested on the spot by Constable Arthur McQuarrie acting on the orders of an overzealous Crown attorney. Sinclair was eventually acquitted of the public-mischief charge, but not before he’d spent a night in Don Jail. For weeks afterward in his daily radio newscast on CFRB, he spoke of little else.

Within three months of Harvey Matthews’ now-famous conviction, it had suddenly become fashionable to resist paying taxes for all sorts of reasons, including the frivolous. In Kamloops, BC, an Indian mother of eight was jailed for a week after she refused to pay the sales tax on a bag of candies for her child, protesting her treatment by the provincial welfare department. In Edmonton, John Salvatore, owner of Jon’s Hairstyling, was fined $250 for refusing to deduct federal income tax from the paycheques of his two employees.

In Montreal, at the annual meeting of

TAXPAYERS’ REVOLT continued

Tax protest spreading: f people won’t pay’—Bennett

René Lévesque’s Parti Québécois in February 1971, a resolution was introduced from the floor urging party members to withhold 27 percent of their federal income tax — the percentage, according to a separatist economist, by which Quebec was being “short-changed by Ottawa.” The resolution was voted down, 782 to 214.

And in Winnipeg a man named Gerald Hart, the part-Irish proprietor of an electronics store, suddenly found he was a man with an idea whose time had come. Hart had been a tax rebel for years. In 1959 he won a case against the federal government, when an appeal court held that the T-2 form he’d filed, which contained no financial information but a lot of facetious remarks, was a tax return within the meaning of the act. After that victory, he intensified his private war against the government, and consistently refused to collect sales tax.

Hart had for years been thought of as an endearing nut. But now, with the taxpayers’ revolt in full swing, he suddenly found himself a hero. Small businessmen started phoning him to ask how they too could avoid collecting provincial sales tax. Hart’s advice was always the same: “Just go ahead and do it, and let them bloody well try to stop you.” A lot of small firms across the country followed Hart’s advice. Surprisingly, there were few prosecutions.

By the spring of 1971 the revolt had escalated from the private protests of a few individuals to a movement that had solid, middle-class backing. There were no recorded cases of homeowners resisting municipal taxes, since that could have meant loss of their homes, but at cocktail parties, office coffee breaks, service-club luncheons and even in bigcity businessmen’s clubs, the revolt was talked about, and talked about approvingly.

After all, some of the biggest businessmen in the nation had warned for years that rising government expenditures were inflationary and thus robbed ordinary

people of their future incomes. A year before the revolt began, J. V. Clyne, then chairman of MacMillan Bloedel Limited, had reminded his shareholders that a typical $30,000-a-year executive in the U.S. would pay about $5,750 in income taxes, but in Canada the same man would pay about $9,500. “There is no doubt,” said Clyne, “that we in Canada are badly over-governed and each government and each level of government is looking for more money than it is now getting.”

There was also resentment about the government’s apparent waste and mismanagement. The auditor general’s report for 1968 — the one that revealed all those astonishing expenditures to refit HMCS Bonaventure — was bad enough. But his report for 1970, tabled in the Commons in March 1971, did nothing to enhance public confidence. There was, for instance, the item of $723,000 the Canadian Armed Forces spent for PingPong balls and tennis racquets; and the financial scandal over the $327,589 a Prairie contractor had charged the Agricultural Rehabilitation and Development Administration for the construction of 427 outhouses — an affair the newspapers labeled “the Privy Purse Scandal.”

With this kind of stimulation, resistance seemed to many almost a patriotic act. Patrick Watson, the TV interviewer, told an NDP seminar that he planned to withhold 15.6 percent of the federal income tax on his free-lance income — that was the portion the government was spending on defense. “If Ottawa spent that money on a guaranteed annual income,” he said, “I wouldn’t object.”

Watson went on to point out that between 1966 and 1969, federal spending had increased by an average of 13 percent each year — far faster than incomes.

And according to a United Nations’ survey, which measured the ratio between government revenues and gross national product, there were only 13 nations in the free world that out-spent Canada.

The opposition parties treated the revolt with caution. Robert Stanfield deplored it in an exchange in the House of Commons on April 13, 1971. But he added, “It isn’t really surprising, because this government has been assuming for some time that the taxpayers’ ability to pay is infinite.” In the same sitting, NDP Leader Tommy Douglas was criticized by Prime Minister Trudeau for managing “to deplore the rebellion and encourage the rebels in the same breath.”

The government was generally restrained. Trudeau, in reply to a question by Stanfield, said only that paying taxes is one of the inescapable duties of citizenship, and that the law provided penalties for those who tried to evade it. Though he conceded that continued tax resistance could lead to financial disaster, “he was clearly at pains to avoid dignifying the movement by acknowledging its effectiveness,” Anthony Westell wrote in the Toronto Star.

The following June, at an in-camera session of the federal-provincial constitutional conference at Ottawa’s Chateau Laurier, two entire afternoons were devoted to what had become an alarming decrease in provincial direct-tax revenues. The press was told that the premiers discussed “fiscal and constitutional matters,” but the tone of the meeting was summed up by BC’s Premier Bennett, who told the gathering (and later leaked it to the press): “Our people simply won’t pay. It’s as simple as that. And until your government, Mr. Prime Minister, adopts sound fiscal policies and provides sufficient revenue channels for the provinces to meet their constitutional obligations, we in the west cannot answer for the consequences.”

Trudeau got the message. Over the next three months, in a series of topsecret consultations in Ottawa between deputy federal and provincial finance ministers, governments agreed to draft budgets aifned at cutting spending by an across-the-board 10 percent. Then in September 1971, Trudeau discovered that

TAXPAYERS’ REVOLT continued

Stock market slides Industry polls warn of impending disaster

Ottawa was as vulnerable as the provinces.

For the past six months or so, THRIFT, OPT/OUT and similar organizations across the country had been counseling a highly original form of tax resistance:

You filled out your T-4 form correctly, but in totalling up what you owed the government, you made an “arithmetical error,” which brought the total to precisely zero. There was nothing illegal about it — after all, how can you be penalized for incorrect addition? — and you have to pay eventually. “But if five million taxpayers make mistakes in their arithmetic,” one OPT/OUT leaflet said, “what’s the computer going to do? And where does Ottawa get its money meantime?”

At first this, too, was regarded as a frivolous idea, although some viewed it as dangerous to the economy — notably the Winnipeg Free Press, which ran a front-page editorial deploring the idea. The Free Press was right. Early in August the Department of National Revenue secretly commissioned a publicopinion survey. When, in mid-September he saw the results, Finance Minister Edgar Benson asked for an immediate meeting with the Prime Minister. Using borrowed cars, they drove to a secluded skiing lodge in the Gatineau Hills.

“If the findings of this survey are reliable,” Benson said, “23 percent of the taxpayers aren’t going to be sending us money next April 30.”

“What does this mean?” asked Trudeau.

“If the word gets out,” replied Benson, puffing on his pipe, “it means a financial and monetary crisis that would curl your hair. We’ll have to devalue the dollar down to God knows where.”

Benson explained that his department’s computers were now programmed to reject any tax returns that were computed incorrectly. These returns then had to be processed by hand.

“It means we’ll have to hire maybe

5,000 extra people to recalculate the returns and send out the assessments.” And what would the government do for money in the meantime?

“We live on our cash reserves,” said Benson, “and we borrow like mad. God knows what it will do to interest rates.”

Already, the stock market was reacting to what appeared to be an impending financial disaster (some private firms had been sampling opinion themselves). In a single day, after the Gallup Poll reported in October the probable extent of the taxpayers’ revolt that would come to a head on April 30, the industrial average on the Toronto Stock Exchange fell an unprecedented 7.69 points. By November

1, 1971, some $8.6 billion had been shaved off the values of TSE stocks.

Trudeau had a crisis on his hands. Until now, he had tended to dismiss the revolt in the hope that it would peter out. But now, with Christmas approaching, it became apparent — even to the most fanatical of the tax rebels — that the cure might be worse than the disease.

The downward pressure on the market, combined with frantic speculation against the Canadian dollar in New York and Zurich, created a reaction approaching financial panic. The price of Canada Savings Bonds, undermined by the public’s apparent loss of confidence in its government, dropped alarmingly. This drove interest rates still higher; in mid-November, a consortium of New York bankers charged Ottawa an unprecedented 14.35 percent on a short-term treasury bill issue. The government of Canada had become a long-shot risk.

Consumers quickly felt the pinch. Bank credit dried up for almost everybody. By Christmas, Canada had achieved Instant Depression. Finance companies, forced by high interest rates to call consumer loans, began repossessing cars and refrigerators. Retail sales were off an estimated 36 percent. The Financial Post reported “consumers are looking — but not buying.”

Unemployment, already at its highest rate since 1963 because of a business slowdown, climbed still higher in the weeks before Christmas. ►

The Prime Minister did not spend that Christmas holiday in Tahiti as he had planned. Instead, he summoned his inner cabinet for an emergency session. Then, working frantically with officials from Finance, Justice, National Revenue and a team of speechwriters and executive assistants, he drafted a legislative package for presentation to the House on the first Monday in January 1972.

On Sunday night, he took the unprecedented step of going on both television networks to announce what parliament would be told the following day.

Trudeau’s speech was calm, professorial and tough. He acknowledged, for the first time, the extent of the revolt and the financial panic and spoke of the reasons behind it:

“All of us,” he said, “are concerned at the cost of big government. But all of us, let me remind you, are responsible for it. If the Canadian people wish their governments to provide the services a modern state requires, they must be prepared to pay for them. If they don’t want medicare, education, highways and aid for the depressed regions of this country, let them say so — but at the polls, not on their tax returns.

“My government has decided — and here I speak with the concurrence of the leaders of both major opposition parties — that acts of commission and omission designed to subvert the tax system will no longer be tolerated, and that I will submit amendments to the Criminal Code and income-tax act to give effect to this intention.”

After only token debate, the amendments passed the House by Wednesday and the nominal “leaders” of the taxpayers’ revolt found themselves liable to stiff penalties for “counseling, urging or advising nonpayment of lawful taxes.”

April 30 came and went without incident, assisted by a toughly worded advertising campaign sponsored by the Department of National Revenue, built around the slogan “Pay Now — Or Pay The Price.” But the campaign was largely unnecessary. The public, horrified by the consequences of its actions, began to reverse itself. The revolt was over.

But it left some beneficial effects. In the following fiscal year, not a single provincial government presented a budget in which expenditures had increased. Large mining companies were deprived of several million dollars’ worth of subsidies, forcing them to resort, reluctantly, to what used to be known as free enterprise.

Even Harvey Matthews, the man who’d started it all, benefited. Sitting at his kitchen table one evening in April 1974, he calculated that his federal income-tax bill had been reduced by 13 percent. He told his wife and she said, “Well, I guess it was worth it then.”

“I don’t know,” said Harvey. “It was really pretty scary, when you stop to think about it.” □