Smart money is on Manitoba getting HST

It's amazing how quickly political stories can change.At the beginning of the week, the Free Press reported that Manitoba was considering a request from Ottawa to harmonize the PST with the federal GST. Manitoba has resisted federal pleas to harmonize the two taxes, but Finance Minister Greg Selinger confirmed he might be interested in what the federal government was selling. Manitoba was not "rushing" to harmonize, but the province was taking a good, long look at the proposal, Selinger said. Given the fact Ontario and British Columbia were moving to harmonize their sales taxes this year, after which the gross majority of provinces would have a HST, Manitoba had to consider getting with the program.

Ah, but that was Wednesday. By Thursday, the story had changed.

Premier Gary Doer, who was attending the annual premiers conference in Regina, had an entirely different spin on the issue. Doer told the Toronto Star he wasn't interested in harmonization. "The bottom line is we have opposed it."

In the course of two days we had a finance minister who was cautiously supportive of the HST and a premier who was decidedly skeptical.

It's not clear what is behind the conflicting positions. Sales-tax harmonization is an issue many provinces have feared because it is often characterized as nothing more than a tax grab.

However, despite his cool response in Regina, Doer is likely aware the HST does not represent a significant increase in taxes. Although there is no doubt that Doer drives the bus that is the provincial government, we can safely assume that Selinger is a more accurate reflection of the province's thinking on the matter.

Harmonization does mean that some things previously exempt from the PST, including some big-ticket items such as new homes, would be taxed under the HST. That is not insignificant, but in other provinces where the HST has been levied, it's been a fairly smooth transition.

Selinger is no doubt aware that those provinces that moved to the HST softened the blow on new-home sales with rebates to homeowners. So, there are ways to mitigate the impact of the most burdensome applications.

But if anything will tip the balance in favour of the HST in Manitoba, it is the fact that the opinion leaders in the business community, including Manitoba's chambers of commerce, passionately support the idea. Why would business get behind a tax increase? Having to collect and remit a single sales tax, instead of two separate taxes, will save businesses tons of money.

Business leaders and most economists have long argued for harmonization. In fact, it has been promoted by federal governments of different stripes ever since the GST was first introduced. Selinger admitted that Manitoba's reputation as a place to invest could be hurt if it is the last province to hold out against the HST.

But as hard as Ottawa has pushed on the issue, Manitoba has pushed back just as hard. In the late 1980s, former Tory premier Gary Filmon resisted the siren's call of harmonization. His refusal infuriated then-prime minister Brian Mulroney, and was considered one of the major reasons why they suffered from a less-than-model relationship.

The current NDP government is just as cautious about entering into a harmonization pact with Ottawa, even with the promise of hundreds of millions of dollars in federal cash to cover transitional costs. Predicting Doer's final decision on the matter will be difficult given his propensity to keep his cards close to his vest. But there are some factors that should help make the outcome a tad more predictable.

First, while Doer is committed to being the NDP premier that never raises taxes, the more crucial long-term goal is to ensure that he does nothing to provoke the business community.

Doer fought to convince a lot of moderate conservative opinion leaders he was not a tax-and-spend New Democrat. Although enemies claim he is loyal to the NDP philosophy, many in the business community believe him to be the business-friendly socialist.

Political foes will jump all over the HST as a tax hike, but Doer will win much more support in the long run from the business community by embracing harmonization. And for that reason, we can conclude he is more interested than he's willing to admit. Being cautious is Doer's nature. But when it's all said and done, the tea leaves suggest Manitoba will have a HST.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition August 10, 2009 A5