CANADA.

A taxing situation

BRIAN BERGMAN April 7 1997
CANADA.

A taxing situation

BRIAN BERGMAN April 7 1997

A taxing situation

CANADA.

BRIAN BERGMAN

Business has been booming of late at Cruikshank’s funeral home in central Halifax. It is not due to a rash of untimely deaths, however, but to what many view as an unwelcome change in the tax system. On April 1, residents in Nova Scotia, New Brunswick and Newfoundland start paying the so-called harmonized sales tax (HST), a blending of existing federal and provincial taxes into a single 15-percent levy. One result of the change is that taxes will be going up on many goods and services—including funerals—that had previously carried only the seven-per-cent federal Goods and Services Tax. For Don Flynn, president and general manager of Cruikshank’s, that has meant a deluge of customers showing up to prepay the cost of their own funerals in order to beat the tax man. But despite the immediate bonus for his bottom line, Flynn views it all as a sad turn of events. “I was against putting even the GST on funerals,” he says. “You know, you have to be born and you have to die. It’s one sure way of getting the tax because everyone is going to die.”

HALIFAX

.*80>

The HST—widely known as the blended sales tax until critics took to calling it “the BS tax”—provides a textbook example of how something can look so appealing to the inhabitants of political back-rooms and corporate boardrooms, yet so appalling to the per-

son on the street. Nova Scotia Premier John Savage—whose championing of the HST helped sink his political fortunes and speed his recent decision to resign from politics— calls it “the greatest economic boost since Confederation.” New Brunswick Premier Frank McKenna boasts that it will give three Atlantic provinces—Prince Edward Island declined to adopt the HST—a “huge competitive advantage” over other regions of the country.

In many ways, they make a good case. For businesses, the HST promises to be more efficient and less costly than the current tax regime. At the same time, consumers of big-ticket items, such as cars, computers and refrigerators, will pay considerably less than the current combined provincial and federal sales taxes—as high as 20 per cent—that they are now charged. But the deceit, as many see it, is in the details. First, there were the optics. The HST came about because the federal government was desperate to do something—anything—to make good on its 1993 election promise to get rid of the GST. While six provinces balked (Quebec has already harmonized its sales taxes), three Atlantic premiers—all Fiberais—signed on in exchange for $961 million from Ottawa to off-

set the revenue they expect to lose over four years because of the lower blended tax. Critics quickly dubbed the deal the “billion-dollar bribe.”

Making the HST an even harder sell is the fact that taxes will be going up on such basic goods and services as haircuts, home heating fuel, electricity and clothing purchases under $94. At the Halifax food bank, which last week launched its annual “hunger awareness” campaign, executive director Diane Swinemar sounds discouraged. Swinemar predicts that the new tax regime will hurt her clients, while forcing others into food bank lineups for the first time. She is also critical of the fact that the Nova Scotia government is lowering taxes on such things as alcohol at the same time that it is hiking taxes on many essential items. “Our priorities,” she says, “are all mixed up.”

But it is not just advocates for the poor who take umbrage at the HST. Polls show a clear majority of Atlantic Canadians oppose the blended levy, with most saying they simply do not believe claims that it will lead to a lower tax burden for most consumers. “Every time the middle class is told about tax reform, they automatically think tax increases,” says Acadia University political scientist Agar Adamson. That kind of cynicism was certainly on display during Senate hearings last month in Atlantic Canada. Because the HST will in some cases increase tax rates, hairdressers warned that more of their clients would enter the underground economy, cabbies said that people would opt to walk, and seniors complained that their pensions would be eroded. One Halifax veterinarian even raised the spectre of owners declining to neuter their pets and of fewer children knowing the joys of caring for animals.

The main upshot of the Senate hearings was Ottawa’s decision to back down on its insistence that the blended tax be hidden in the price of consumer items. National retailers, who supported the HST in principle, had lobbied strongly against the measure, saying that it would cost them dearly to keep a separate inventory of goods destined for Atlantic Canada. Ironically, polls had shown that so-called tax-inclusive pricing was the one part of the HST that consumers supported—and junking it left people like Desmond Nugent, a retired Halifaxarea civil servant, hopping mad. ‘To me, it’s lying, cheating, deceit,” says Nugent. “I can’t stand having these taxes leap out at the cash register and thump us.” In life, as in death, the HST seems destined for a bumpy ride.

The blended sales tax has made few friends