No, we really don't want to reduce inequality

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.

Comments

[Bob Smith]

It's proposals like this that make me think that democracy is doomed. I mean where do you start? Inefficient? Check. Inequitable? Check. Unaffordable? Check. This is the platonic ideal of bad tax policy.

I don't even get this policy as an appeal to pure selfish greed on the part of Ontario voters? Are we so dumb that we don't realize that that money has to come from somewhere? Perhaps Ontarians think that money just comes from the money fairy at Queen's Park (rather than the gnomes of Zurich).

This doesn't surprise me, though. I remember when the Harris/Eves Tories were forced to back off electricity reform (to charge Ontarians the actual price of electricity) when people objected on the basis that it interfered with their god-given right to light up their houses with enough Christmas lights to attract the attention of aliens from distant galaxies (presumably so Santa could see their houses from Mars).

Maybe Macleans was right when it described Ontario as Canada's Greece.

[JL]

Great post, very interesting read!

[Tim]

A couple of comments. This has been done in several of the HST provinces already; Newfoundland, Nova Scotia, and BC(as long as it keeps the HST) have this type of rebate in effect. Quebec has never done this and New Brunswick did under Bernard Lord but got rid of it after a few years under the Liberals(To both the Liberal's and Conservative's credit in the last NB election both parties rejected this again as bad public policy). Around this time back in the days when the HST was mainly as Atlantic Canadian thing there was a bit of a skirmish among more populist conservatives that support this and more "academic" conservatives that wanted to cut the rate against the full tax base.

I do have to note if anyone has forgottent is that this was also an issue at the Federal level, a "demand" by the NDP back in the spring during the budget process which the Federal Conservatives rejected precipitating the last election. I believe Flaherty referred to it as "extroadinarily expensive." In the Atlantic provinces there are actually some rather interesting HST rebates introduced over the years; NB rebates HST on Handicapped Accessible Vans for one and Newfoundland and Labrador rebates new housing and building material costs but only for construction in Labrador.

[Curt Doolittle]

Democracy and redistribution are luxury goods. Property rights, the common law, and the work ethic are necessary goods. Sure democracy is doomed. :)

[Determinant]

Actually it is a symptom of the chronic inability of the policy-wonk class to explain policy rationales to the general public.

Nobody understands how the GST/HST actually works. Few ever talk about the credits. All they see is another sales tax dressed up.

Nobody, but nobody talked about the benefit of Ontarians getting increased HST credits and businesses getting input tax credits. Small business owners were clueless about input tax credits. I had the delightful experience of a convenience store owner complaining about the HST to me.

If you want the NDP to have decent analytical skills then call the Broadbent Institute and ask to deliver a seminar series based on your "Economic Policy Proposals for the NDP" post series.

But remember that policy is the method while politics is selling the method.

[Tim]

Determinant:

Have many small businesses really not been claiming GST input tax credits for the last twenty years? I can understand in the US how many people including many policy elites don't understand VAT/GST but I can't imagine how any small business owner in Canada/Ontario would in their right mind just eat the Federal 7%/5% GST for twenty years. The HST is collected on same T32 GST tax return every business has been using since Januarary 1st 1991. I know there were implementation issues back in the 1991-1992-1993 period but these should have been worked out years ago.

[Too Much Fed]

"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."

Why not just tighten up the labor market?

[Shangwen]

A $350M boutique credit for the upper quantiles is nothing. Consider the popularity of increased "investment" in health care, especially on the anti-inequality left. Giving health care professionals in Ontario a modest 1% pay increase would cost you $380M in 2012. And that's not for doing more work. Now, consider that many on the left would consider a 1% rise a mere fraction of what would be acceptable for health spending, and you are looking at proposals to add billions to the personal incomes of a very small number of people. The same people who hate income inequality are also wildly in favor of it.

Is there a problem out there of terrible analytical skills? Yes.

[Determinant]

Tim:

People really are that stupid. No, really, they are. It's enough to make you cry.

Shangwen: Actually I favour less spending on hospitals and inflation-rate increases only to health professionals.

I'm odd that way but I have been around the health system more than most as a diabetic. I have had unnecessary tests, doctors who don't know what isn't necessary and people who think a doctor is the solution to every ache and pain. It's easy to bring a doctor up short once you have enough experience.

I'd rather we focus on health management, starting with people before they even need the system. Plus letting people know when the system has reached the end of its capabilities, something we are currently terrible at.

[Garrett Petersen]

I think people forget when talking about income quintiles just how many people are in that top quintile at some point in their lives (hint: it's way more than 20%). Nobody is born with a large house in need of lots of heating: most of us start as dependents, move to a small place, and then to a larger one when we approach our peak earnings. This policy shifts each person's tax burden from his 40's (when he consumes more heating) to his 20's (when he consumes more of other things). People can do that themselves by saving, and savings don't create a dead weight loss.

[Mandos]

Yeesh. We've flogged this horse to death. It is not just about reducing inequality, it is reducing inequality in the *right way*; that is, including politics as fully equal partner in policy-making. Left parties will *always*, in the Canadian context, tend to oppose consumption taxes. That you can't understand why points to a certain amount of tunnel vision.

[Moris]

I have the same mind. If you want the NDP to have decent analytical skills then call the Broadbent Institute and ask to deliver a seminar series based on your "Economic Policy Proposals for the NDP" post series.
But remember that policy is the method while politics is selling the method.

[Mandos]

But remember that policy is the method while politics is selling the method.

I don't agree that this is the difference.

[Robert McClelland]

This policy has nothing to do with inequality. Next strawman.

[Stephen Gordon]

I eagerly await the NDP's proposal for tax cuts for high incomes. "Hey, this policy has nothing to do with inequality! Get off our backs already!"

[Stephen Gordon]

In fairness, it's sure to be a vote-winner.

[Robert McClelland]

Adding things to the list of items exempted from sales tax has been a staple in the NDP's bag of policies for quite some time.

Charging GST on feminine hygiene products is a discriminatory gender tax that ought to be abolished, Ontario's New Democrats said Friday.

Would you have have claimed that this will would do nothing to reduce inequality too.

[Stephen Gordon]

Sigh

[Bob Smith]

Robert McClelland: "This policy has nothing to do with inequality"

Not quite, the policy likely (clearly) isn't intended to deal with inequality. But it both increases consumption inequality (by reducing taxes on goods consumed disproportionately by the wealthy) and hampers the ability of the provincial government to address income inequality by other means (by reducing the resources on hand to deal with it). If one doesn't care much about inequality, that's not a knock on the policy (although, even then the policy is untenable on other grounds), but if one does purport to care about inequality it's indefensible.

Robert McClelland: "Charging GST on feminine hygiene products is a discriminatory gender tax that ought to be abolished, Ontario's New Democrats said Friday.

Would you have have claimed that this will would do nothing to reduce inequality too."

Actually, that is a policy that does reduce inequality, albeit of a different variety, i.e. a systematically differential tax burden for men and woman, and can probably be justified on that basis alone. Moerover, I suspect it doesn't have the differential redistributive implications for the rich and poor that an exemption for energy has (unless we believe that the top quintile of Canadian woman spend three times as much on feminine hygiene products as the bottom quintile). It probably also doesn't cost the public purse $350 million and isn't likely to promote the (over) consumption of feminine hygene products (the demand for which, I would have though, would be pretty inelastic), in contrast to reducing taxes on energy which will almost certain result in increased energy consumption. In short that is a policy which may reduce a form of inequality, likely does not create meaningful inefficiencies, and is relatively affordable - i.e., the anti-thesis of this PC-NDP Frankenstein monster of a policy.

Mandos: "Left parties will *always*, in the Canadian context, tend to oppose consumption taxes"

Really? Tell that to the Nova Scotia NDP, who increased the HST rate to 15% last year. I suppose the distinction between the Nova Scotia NDP and the Federal and Ontario NDP, is that the former have to deal with the realities of governing, and therefore have to think seriously about policy, whereas the latter don't (and, if they keep pursuing policies like this, won't have to for the foreseeable future). Of course, consumption taxes are the sine qua non of progressive social policy in progressive European countries like Sweden (25%!), but that point seems to elude the Canadian left. That the Canadian left is so adamently opposed to consumption taxes is indicative of real policy and intellectual failings on the part of the Canadian left.

[Robert McClelland]

Sigh indeed, Stephen. It's ludicrous to believe every policy must address one specific issue. The NDP has lots of policies that address inequality. Why don't you assess their effectiveness instead of battling strawmen.

[Stephen Gordon]

Um, it's not a straw man. It's an actual policy proposal. One that shovels money to the top of the income distribution in the name of what, exactly?

[Robert McClelland]

it both increases consumption inequality

Perhaps, but you'd be hard pressed to find any policy that doesn't trample on some other issue.

[Bob Smith]

"It's ludicrous to believe every policy must address one specific issue"

Fair enough, what issue is this policy suppose to address (other than a shortage of NDP/PC MPPs at Queen's Park)? If it's the rising cost of energy, Stephen's point is that there are other, better, policies to address that goal (an HST credit, for example) that don't have the (in)equity and (in)efficiency implications that this one does, and which would cost the government significantly less. A party that was serious about inequality (in the case of the NDP) or efficiency and a balanced budget (in the case of the PCs) would try to achieve that goal using a policy that has the least adverse impact on inequality, efficiency or the budget deficit (s the case may be). If they don't, it's fair to question how seriously they value those purported ends.

[K]

Stephen: "One that shovels money to the top of the income distribution in the name of what, exactly?"

Whoa! Not so fast...

First: I *don't* support this policy. It's dumb. There!

But for the issue of inequality it's not so obvious.  Lets say those above the median pay about 10 times as much tax as those below (I don't know the actual figure, but could be right). Then lets institute a policy that pays $5 to those above and $1 to those below. Regressive? Not if its funded from general taxes. The lucky duckies at the bottom will pay (1/11) * $6 = $0.55 in taxes for a net gain of $.45. The rest will pay (10/11)*$6 = $5.45 in taxes for a net loss of (the same) $0.55. This is the magic of income inequality combined with proportional tax (even a flat one). The relevant parameter from the perspective of inequality is the ratio of the fraction of the benefit received by a particular quantile to the fraction of total taxes paid by that quantile.

[Stephen Gordon]

That falls in the category of "counter-claims to the effect that high-income households deserve more public money because they spend more on heating." I'm not buying it.

[K]

Stephen: "counter-claims to the effect that high-income households deserve more public money because they spend more on heating."

That's exactly the opposite of what I said. They get *less* public money net of transfers and taxes. And I said *nothing* about dessert. My only normative claim was that it's "dumb." But not because it's regressive.   The policy is a transfer of $0.55 of income from the top half to the bottom half and therefore it's *progressive*. Is there a part of the calculation that you think is incorrect?

If you find it hard to see the intuition imagine that the government pays 50% of the costs of food and heating. Progressive or regressive?

[Robert McClelland]

Fair enough, what issue is this policy suppose to address (other than a shortage of NDP/PC MPPs at Queen's Park)?

As far as I can tell just that one. And yes, I know that populist pandering for votes is now a high crime to some. But those people are what I like to call, unelectable.

[tyronen]

Ten years ago the NDP probably would have opposed a policy like this.

And ten years ago they had half the seats they have now and had to beg for party status.

[Tim]

Bob Smith:
For one thing you don't have to look too long on many NDP symphathetic blogs ond websites to realize Darrell Dexter is not exactly a trusted figure among the NDP faithful a lot like Thomas Mulcair whom I suspect is also strongly in favor of consumption taxes too. What I find really amusing and somewhat distasteful is how many of Federal Nova Scotia NDP MPs who are caught in the middle between Dexter and the Federal party blame the whole rate increase on John Savage who was the Liberal premier who introduced the HST to Nova Scotia in the 1990s and has passed away in the meantime. In this regard Dexter didn't help himself with his party on his recent visit to BC making public statements that could be construed as supporting BC keeping the HST.

Determinant:
One thing I don't get is that if you don't claim input tax credits for example as a convience store you are essentially paying GST on all your inventory then have to charge it again to your customers which seems to be a completely stupid business practice. The CRA actually sends out a partially filled out T32 return when ever your reporting period ends with everything filled in but the numbers.

[Bob Smith]

Tyronen: "Ten years ago the NDP probably would have opposed a policy like this. And ten years ago they had half the seats they have now and had to beg for party status."

Really, would an HST "Energy Tax Credit" targeted at the bottom 60% be that unpopular a policy? There's an example of a policy that addresses rising energy costs, appeals to the median voter, reduces inequality, doesn't hamper efficiency, and on Stephen's numbers would cost half as much as this policy. Hey, I accept pandering as the price of political success, but there's smart pandering and there's stupid pandering. This falls into the latter catagory.

I was speaking to a friend of mine who's a PC bigwig and even he was floored that the NDP didn't insist on some sort of cap on this. For the PCs, this makes some sense from an ideological (if not practical) perspective, it'll force the Liberals to make even deeper cuts to teh size of government. That just underlines how silly a policy it is for the NDP.

[Tim]

tyronen:
In fact the NDP makes a big deal of the fact they have always opposed broad based value added consumption taxes. They opposed the GST under Mulroney, they stopped harmonization in Saskatchewan under Romanow, they pledged to scrap the GST in the 1993 election before the Liberals did likewise, they opposed harmonization in the Maratimes, and most recently they opposed harmonization in Ontario and BC. Not trying to read minds but I suspect they actually see themselves as highly principled as they have taken a position and stuck with it through thick and thin over almost two decades whereas the Conservatives and Liberals federally and provincially with responsibility of governing have had to shift their views over time.

[Mike Moffatt]

RE: Progressive vs. Regressive.

I guess the question that needs to be asked is "relative to what?" Relative to increasing HST rebates, it's a horrible regressive policy. That's one way of looking at it. Another is not comparing it to any alternative policy, but asking where the money is going to come from - how is the lost tax revenue going to be made up?

[Bob Smith]

Determinant: In fairness to the convenience store owner, I can see why they might not really appreciate the GST/HST. After all, they probably didn't pay much PST (at least not once the business was established). So it probably wasn't much of a burden to them, and would have been relatively simple to administer. In contrast, under the GST/HST they have to pay GST/HST on their inventory. Sure, they get it back, but it could be a cash flow-issue (i.e., if you had a big taxable expense, as renovation or a repair, such that you would be entitled to a refund at the end of your reporting period, you might have to wait a couple of months to get it back). Moreover, it makes for more complicated administration, which I can understand would be problematic for a small business.

[Bob Smith]

K: "Regressive? Not if its funded from general taxes."

By that logic, accross to board tax cuts are not regressive (notwitstanding that the lions share of teh benefit accrues to the top quintile) because the benefit to each taxpayer is proportionate to the taxes they paid (and, say, the Harris tax cuts would be sharply progressive, since they had larger proportionate tax cuts at the bottom rates than at the top). Gotta say, that would be a new argument for the NDP (and certainly wasn't one I heard when I was campaigning for the Tories back in the day).

I think the problem with that argument is that it's premised on the notion that taxpayers have some sort of entitlement to the taxes they pay. As I see it (and this may conflict with my generally right-wing world-view) once money is collected by the government we all have an equal claim to it (or at least as equal to claim to how it is spent by the government). Any spending policy (or tax expenditure) which directs more funds to the rich than to the poor, is in that light, prima facie regressive. That doesn't mean it can't be justified on other grounds (efficiency, perhaps), but clearly fails on equality grounds.

[K]

Bob: "I think the problem with that argument is that it's premised on the notion that taxpayers have some sort of entitlement to the taxes they pay."

I really wasn't trying to make any kind of a value judgment. Like Mike says, in order to evaluate whether a policy is regressive you have to say something about how it's going to be funded. Taxes? Spending cuts? Inflation? Permanent debt increase? Default? Assuming we already have our desired portfolio of government spending and tax policy, we might have to assume the current mix of all those things which, admittedly, would make the proposed policy look a lot more regressive.

From both a left-libertarian or progressive perspective, taxes ought to reflect your dues to society - either a payment for costs or externalities of your activities or a kind of social debt to society for your good fortune. Government should collect those taxes *whether they are needed for current spending or not* and either spend it (socialists) or return any excess to all citizens. Extreme rightys tend to view taxes as payment for security services needed in proportion to their wealth, thus a claim on their rightful portion of benefits.

So in general I think I've talked myself into agreeing with Stephen and you. If the taxes are fair, the fairness of the benefit should should be evaluated on its own merit.

[Bob Smith]

K,

I'm not sure I'd go so far as to say that governments should collect taxes whether they are needed or not, but I think we agree on the substantive point. Perhaps the less value laden way of saying what I said earlier is that, in assessing a given expenditure policy, you have to take taxes as given. If you're taking into account taxes, than you're really assessing the specific combination of taxes and expenditure, rather than the expenditure policy per se. In some cases that might be appropriate, but this isn't one of them.

[Andrew F]

Why doesn't McGuinty just pull a Harper and declare this a matter of confidence? The opposition will fold.

[K]

Bob: I think maybe both perspectives can be squared. Let's start with the perspective that the current arrangement is "fair". Then assume a need for a new government expenditure which is specifically designed to benefit a particular disadvantaged group. Since the distribution between citizens is otherwise already fair, then they should all pay for this new programme exactly equally. Lefties will object strenuously here - but remember the benefits of the new spending are not received disproportionately by the rich. So if you tax them disproportionately the distribution will no longer be fair. The point is that since the cost should be assumed to be borne by everyone equally, we can evaluate the spending proposal entirely on its own merits.

[Bob Smith]

Andrew F: "Why doesn't McGuinty just pull a Harper and declare this a matter of confidence? The opposition will fold."

They might. But how eager is Dalton McGuinty to go down as the Joe Clark of Ontario politics? The more likely scenario is that he'll do what the Tories did in their first few years of minority government, where he'll toss the opposition parties enough of a bone to sit on their hand. This idea is so dumb, it should be easy to craft a better alternative Hint: Dalton, if you're smart, propose a $75 HST credit to housesholds with incomes less than $80k a year, and dare the NDP and Tories to vote against it. People with higher incomes won't care, people with lower incomes will prefer that to what the NDP and PCs are offering, and it'll cost half as much.

[Stephen Gordon]

K: I've said this before, at least once: If you're a self-professed progressive and you find yourself looking for a way to justify giving the lion's share of a program's benefits to those with high incomes, you have to start asking yourself why you're even trying.

[Andrew F]

Why not insist that the opposition also agree on a way of funding this? Where do they find the $350 million?

[Tim]

Andrew F:

The federal Liberals actually tried a similar stunt under Dion in the spring of 2008 trying to make RESP's tax deductible through a private members bill which Flaherty was only able to stop by essentially repealing the recently passed PMB under the Budget Implementation Act which the Liberals had to vote for to avoid an election(The media commentary even by many Liberal sympathizers was not exactly positive to the "stunt"). One thing to realize is that moving a private members bill forward is actually a fairly slow process so it could be months before this is actually in a position to pass. Generally PMB's are ruled out of order if they appropiate funds or raise tax rates however, several speaker's realing have indicated you CAN create a tax credit or rebate through PMB's. Having said governments tend to try very hard to avoid the budget process getting unsurped through PMB's. I did notice that Dwight Duncan told the media today that obviously if the opposition didn't vote for the budget there WOULD be another election this spring.

If the opposition parties truely want this right now in my mind there have to consider bringing down McGuinty on the throne speech and putting in a PC-NDP coalition govt. Harper and Flaherty would probably kill Hudak if he ever did this but I suspect there are many in the PC caucus like Lisa Macleod, Randy Hillier, John Yakabuski that hate McGuinty enough to do it and face Harper's wrath.

Bob Smith:

I don't think the situation is completely the same as with Joe Clark. Clark was completely new to the Prime Minister's office McGuinty has been premier for over eight years now, in a snap election McGuinty would probably have the advantage. I think given the uncertain outlook for Hudak in a spring leadership review there is actually a case for Hudak to go out guns blazing and this proposal might be very well part of that(If Hudak were to precipitate something as this point and lost the next election his political career would be permanently over ala Stephane Dion). I do think this heating fuel rebate issue like free trade in 1988 has the interesting circumstance that even if a majority of people support it their support is split between two parties while those that oppose have realistically only one party to channel that view through.

[Determinant]

I didn't go into detail with the convenience store owner but his views were a sign to me that even people who should care about HST didn't. The policy was not explained enough and sold enough through the political process. It was just an example of sheer ignorance.

Tim:

I was really bored one day and read House of Commons Practice & Procedure, which is online.

The rules on spending in Westminster systems is clear: a money bill has to have the Royal Recommendation. The Crown requests money, the Commons appropriates it and the Senate assents to the request. Delete the Senate in the case of the provinces.

The Royal Recommendation can only be given by the Government has they are the Crown's ministers. Opposition parties do not have this power because they don't have the Crown's ear. This means the government can spend and the opposition can't. It's where the Confidence Convention comes from because if the Government gives a money bill the Royal Recommendation and can't get the bill through, the Crown's advisors will have proved themselves useless and in need of replacement.

The House of Commons rules say that a PMB on money can be discussed but it must be indicated that it will have the Royal Recommendation by the final stage of the bill. If it passed Third Reading and still doesn't have the Royal Recommendation it is out of order.

Every legislature is a bit different but I have my doubts as to whether an opposition bill on a tax credit is in order without the Royal Recommendation.

[Determinant]

Stephen:

I was not being fecicious or snarky when I said you should call the Broadbent Institute and get yourself booked for a seminar. I honestly meant it as a card-carrying member of the NDP and as a person who thought your NDP Economic Advice series was worth reading.

I respect your analysis and it deserves to be circulated. I may disagree with some of it, but I respect it.

You, sir, deserve to grace a few speaker's podiums.

[Stephen Gordon]

Thanks, but it's not really my decision...

[Determinant]

Again in total respect you won't circulate until your are plugged into the circuit.

The Broadbent Institute and the NDP are not going to call you, you need to call them and present them with a paper compiled from your blog post series of NDP Economics Advice. Then you need to have a civil conversation with some sufficiently senior bigwigs at a Montreal restaurant of your choice and convince them to listen to you.

Or you could ask Nick on how he got to be associated with the C.D. Howe Institute.

[Andrew F]

Is the Broadbent Institute interested in advice from people outside the tent?

[Bob Smith]

Tim,

Personally, I suspect that Hudak will be around for another election in 2013 (since,despite recent rumours, I doubt Flaherty will be coming back to Ontario any time soon, and the Provincial Tories arent exactly deap in terms of talent, so I doubt he'll be keen on precipitating an election (at least not until the Liberals have started to implement some of the less popular recommendations coming out of the Drummond report - in that I suspect both the Tories and the NDP think they'll be further ahead to bide their time). But on the other hand, lord knows the Tories do some strange things, does McGuinty want to risk his government on the sanity of the Tory base?

[Bob Smith]

In terms of whether the opposition parties could enact a rebate for HST on heating fuel, it's actually an interesting question.

The provisions governing money bills in Canada are sections 53 and 54 of the Constitution Act, 1867. Section 53 provides that a bill "for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost shall originate in the House of Commons". In contrast, section 54 says that " It shall not be lawful for the House of Commons to adopt or pass any Vote, Resolution, Address, or Bill for the Appropriation of any Part of the Public Revenue, or of any Tax or Impost, to any Purpose that has not been first recommended to the house" by the crown (i.e., the government). Under section 90, these federal rules are adopted for the provinces. So that the rules are the same both federal and provincially (obviously, section 53 is of less importance provincially since the provinces have abolished their upper chambers).

What's curious is that those provisions seem to have different conceptions as to what constitutes a "money bill". In section 53, it's a bill that appropriates public revenue or imposes taxes, in section 54, its a a bill that appropriates public revenue, or any tax or impost. Stritly speaking, section 54 doesn't make sense, how do you appropriate a tax? You almost wonder if there the authors had meant to include "the imposition" in section 54 before "of any Tax or Impost" so that section 54 would parallel section 53 (man, a typo in the constitution, that's the worst!), and you suspect a court would interpret it that way.

In either case, though, I can see an argument that an amendment to a tax act to, for example, provide a deduction (in the case of the RESP example) does not impose (or appropriate, whatever that means in the context of a tax) tax and does not appropriate public revenue (since the deduction reduces the amount of public money or taxes collected in the first instance, it doesn't appropiate that public money or tax), and therefore isn't caught by sections 53 or 54. I'm not saying it's a good argument, but I would't be ashamed to make it in public. However, providing a rebate on HST (which is what the NDP/PCs are proposing) is clearly an appropriation of public money, as it involves taking money that the government has properly collected (if only for a moment in time) and giving it back to the taxpayer.

It's also worth noting that the Canadian conception of what constitutes a money bill is signficantly narrower than the British conception of what constitues a money bill (as defined in the Parliament Act, 1911). The latter would include a bill that deals with the imposition, repeal, alteration of a tax statute. Setting the Canadian money bill provisions along side that statute, it's clear that bills that would clearly be money bills in the UK would not be caught by the money bill provisions of the Canadian consitution (and given that both bills originated as acts of the British Parliament, in trying to interpret the Canadian provisions that difference might not be irrelevant).

[Bob Smith]

Come to think of it, if such a bill would be ruled out of order, that makes the NDP/PC proposal politically brilliant.

Think about it. They introduce a bill to rebate the provincial portion of the HST on home heating. It gets introduced in the legislature, makes it through third reading, and then is ruled out of order by the speaker (a Liberal). How does that play out politically? The Tories and NDP get credit for trying to "help hardworking Ontarians keep from freezing to death" (OK, not a direct quote, but we can all hear them saying it), while the Liberals get dumped on for opposing it. Even worse, the Tories and NDP go to town about how the McGuinty government is ignoring the will of the legislature and using technicalities (you know, the constitution) to impede the democratic will of Ontarians. And since the bill gets killed, they don't have to worry about the fact that it's terrible policy,since it'll never see the light of day.

Maybe they're not as dumb as we give them credit for.

[Tim]

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.

[Bob Smith]

"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.

[Tim]

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.

[Jariax Grayson]

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.

[Stephen Gordon]

how then can we justify the home renovation tax credit?

We can't.

[Bob Smith]

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.