Manitoba shies away from HST

The harmonized sales tax may not be dead in Manitoba, but it's certainly on life support.

Finance Minister Rosann Wowchuk made it clear Tuesday the blended tax will not be in the upcoming budget.

That is not to say pressure from the business community to adopt the HST has decreased; Winnipeg Chamber of Commerce president Dave Angus held a news conference on Tuesday to press the province to move ahead with HST adoption. To do otherwise would be catastrophic for Manitoba businesses, Angus noted, because they would lose out on millions of dollars in input tax credits available in pro-HST provinces.

Angus makes a lot of sense. Unfortunately, the politics of the HST debate is not stacking up in his favour.

The HST requires provincial and federal sales taxes to be applied to the same base of goods and services. In return, businesses producing those goods and services get input rebates on the entire blended sales tax; right now, businesses in provinces like Manitoba only get credits on the federal GST.

It's easy to see why business likes the HST. One tax to collect and remit, more robust tax credits lower the cost of doing business. Where is the downside?

Unfortunately, the HST means consumers must pay additional sales tax on many things that were previously exempt from the provincial levy. That makes the HST a politically risky venture for the governments that embrace it. And thanks to Ontario and British Columbia -- both scheduled to implement the HST in July 2010 -- we know exactly how risky.

Ontario Premier Dalton McGuinty signed on to the federal HST plan to help make his province more attractive for business investment. As the province hardest hit by the recession, you can understand his motivation. However, since announcing the HST was coming to Ontario, McGuinty has been scrambling to defuse growing consumer outrage by exempting certain goods and services from the new tax.

On a weekly basis, McGuinty is forced to add to the list of exemptions. It has become a spider web of an issue; the more McGuinty struggles to make the HST work, the more entangled he becomes in a web of exemptions. As he offers exemptions to some sectors of the business world, others are furious they have been left out. That's a lot of unhappy people and he still has a lot of irate consumers to deal with.

If McGuinty needs to be reminded just how risky this HST business is, all he has to do is look to British Columbia, where we have the first electoral consequences in plain view.

In early November, the federal NDP beat the Conservatives in a byelection in New Westminster-Coquitlam. The New Democrats turned the campaign into a mini-referendum on the HST and trounced the Tories in a seat they had hoped to steal. Given the results, it's fair to say the HST is perilous not only for provinces that sign on, but also for the federal Tory government that is pushing the plan.

(In Ottawa, word is the Tory government will introduce HST-enabling legislation for Ontario and B.C. as part of the March budget, after the Vancouver Olympics. The strategy is to make sure the opposition doesn't have a chance to defeat the government on a stand-alone HST bill, thus making it a HST election. The asbestos gloves are out on this one.)

B.C. Premier Gordon Campbell is dogged by a vehement anti-HST campaign led by former Social Credit Premier Bill Vander Zalm, who has promised to make the blended sales tax THE issue over the next four years and in the next provincial election.

Where does that leave Manitoba? Right now, we're on the outside of the HST debate looking in. The province is still negotiating with Ottawa but so far there is no indication Premier Greg Selinger believes the financial compensation, or the political risk, justifies a decision to sign on. If Manitoba were to somehow go ahead with the HST in July 2010, along with B.C. and Ontario, the province ensures the 2011 election is fought on this issue.

Selinger has already said he believes not implementing the HST would put Manitoba at a disadvantage when it comes to business investment. However, he's also on the record saying he's not willing to commit political suicide on this issue.

Since winning power in 1999, the Manitoba NDP have been adept at placating the business lobby just enough to keep it from declaring a holy war. Will the refusal to join the HST choir signal a change in that position? For the chamber and other lobbyists to get traction, it would require Hugh McFadyen and the Manitoba Tories to oppose the HST, a scenario that is remote at best.

Right now, the HST is a large, potentially angry sleeping dog. And Selinger is going to let it lie.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition November 18, 2009 A7