CANADA

THE TAX BATTLE

CRITICS ATTACK A PLANNED SALES TAX, BUT THE PRIME MINISTER SHOWS NO SIGN OF BUDGING

MARC CLARK October 2 1989
CANADA

THE TAX BATTLE

CRITICS ATTACK A PLANNED SALES TAX, BUT THE PRIME MINISTER SHOWS NO SIGN OF BUDGING

MARC CLARK October 2 1989

THE TAX BATTLE

CANADA

CRITICS ATTACK A PLANNED SALES TAX, BUT THE PRIME MINISTER SHOWS NO SIGN OF BUDGING

In the developing confrontation over Finance Minister Michael Wilson’s proposed goods and services tax (GST), the sharp crack of an oak gavel on an Ottawa desktop last week signalled the opening of a critical battle. With that, Conservative MP Donald Blenkarn began six weeks of public hearings into the controversial tax by the Commons finance committee. In the past, the all-party committee has united to criticize credit card companies and challenge government policy. But last week, there was little of the unanimity that gave weight to the committee’s previous stands. Instead, Blenkarn’s gavel set off two hours of partisan bickering among committee members. In one exchange, Ontario NDP MP John Rodriguez challenged Alberta Tory MP Murray Dorin: “If you want to get in the gutter, we’ll go out in the gutter and fight this.” Said Blenkarn: “Committees that get involved in politics of this nature accomplish absolutely nothing.”

For the growing ranks of GST critics, it was a discouraging start to the proceedings. The committee represented a potentially powerful ally in their campaign to convince the government to change or drop the GST. Meanwhile, evidence mounted that the tax has become one of the Conservatives’ least popular initiatives. On the day the committee’s hearings began, CTV Television Network Ltd. released a poll indicating that 79 per cent of Canadians oppose the tax. In Saint John, N.B., delegates to the annual meeting of the Canadian Chamber of Commerce, which represents 170,000 businesses and business people across the country, threatened to withdraw their organization’s previous endorsement of the tax in its present form. Several economists said that the GST could drive Canada into recession. But on his way into a cabinet meeting in Ottawa, Prime Minister Brian Mulroney said that opposition

to new taxes “is normal in Canada.” Legislation to put the tax in place will be before Parliament by Christmas, he added.

Still, critics across Canada were getting in fine to complain about the GST in front of the committee. On Sept. 15 alone, Blenkarn received 400 written briefs and 350 requests to appear before the committee’s eight Tory, four

Liberal and two New Democrat members during their hearings in Ottawa, the Maritimes and the West. And opposition to the tax surfaced in other ways. Benjamin Wolfe, a 45year-old liquor store clerk in Delta, B.C., collected 2,000 signatures in two weekends of canvassing for one of several petitions being organized across the country against the tax.

Declared Wolfe: “We are sickened and disgusted by this tax. We are starting a rebellion.” And in Dartmouth, N.S., where he was collecting signatures on another petition, Allan Smith, the manager of two dry cleaning shops, declared, “We’re encouraging people to call Ottawa and say they won’t vote for this.”

Other opponents of the GST were planning to demonstrate their views in more dramatic fashion. A Vancouver group calling itself SLOG—Spend Less Or Go—planned to re-enact the 1773 Boston Tea Party protest by American colonists against British taxes by dumping 10 cases of tea into the city’s harbor. Said SLOG organizer Brian Calder, president of the Real Estate Board of Greater Vancouver: “We will have no part of an aggressive tax grab.”

In fact, testimony at the Ottawa committee hearings revealed little agreement among experts about the GST’s precise effect. But there was wide consensus on at least one point. Almost every witness condemned the existing federal manufacturers’ sales tax, ranging up to 13.5 per cent on some Canadian-made items, which the GST would replace on Jan. 1, 1991.

One leading tax expert, Toronto lawyer Wolfe Goodman, joined other analysts who noted that governments have sought a replacement for that tax for decades. Goodman told the committee that he was “delighted that, after 20 years, the glacier is finally beginning to move.”

But the demands for changes in Wilson’s GST were equally widespread. A frequent target: his proposal to tax restaurant meals, takeout and ready-to-eat foods, but not food needing preparation, no matter how slight. Several witnesses drew attention to the anomalies that could result. The president of the Canadian Restaurant and Food Services Association held up an 85-cent carton of milk from a fast-food restaurant and a $760 tin of Iranian caviar from a Toronto gourmet shop. Under Wilson’s plan, Douglas Needham noted, the milk would be subject to tax; the caviar would not. He called the difference only one of the “obscene inequities” contained in Wilson’s proposal. Other critics noted that, by extending the tax to cover all food, the government could afford to lower the GST by about one percentage point.

At the same time, housebuilders disagreed sharply with Wilson’s estimate that the new tax would raise the average price of homes by less than $500. According to Thomas Cochren, president of the Canadian Home Builders Association, the tax will push up the price of new houses by at least $3,000—and as much as

$9,200 in Toronto and Vancouver. Wilson has offered to rebate one half of the GST paid on new homes selling for less than $300,000, but Cochren urged that the rebate be raised to two-thirds. Otherwise, he said, “there could be a collapse of the housing market.”

Another witness took issue with Wilson’s frequent claim that the GST will be “revenueneutral.” The minister predicts that the GST will raise $24 billion in 1991, more than the $18.5 billion that would be generated by the existing tax. But he has said that about half of the extra money would be returned to lowincome Canadians through a sales-tax credit. The rest would be used to reduce income-tax rates, raise family allowance and pension payments, and cover the cost of collecting the new tax. But James Frank, chief economist of the independent Ottawa-based Conference Board of Canada, forecast that the GST would still raise Ottawa’s net tax income by $1.8 billion.

On a positive note, Frank added that, by 1993, the GST would lead to a more robust economy. But he added that the transition to the new tax would cause a 2.9-per-cent increase in inflation, higher than Wilson’s estimate of 2.25 per cent, and cost 68,000 jobs.

But there was no indication last week that either Mulroney or Wilson was ready to adopt any changes to the tax. In fact, one senior official in Wilson’s department said that work was under way “day and night” to complete the wording of a GST bill modeled on the minister’s plan. “It took us three years to work this out,” the official, who requested anonymity, told Maclean’s. “You can’t tax food or lower the rate without upsetting the whole thing.”

MARC CLARK in Ottawa with HAL QUINN in Vancouver, JOHN HOWSE in Calgary, BRENDA O’FARRELL in Montreal and VALERIE MANSOUR in Halifax

HAL QUINN

JOHN HOWSE

BRENDA O'FARRELL

VALERIE MANSOUR