Fallout from tax increases hard to measure

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This article was published 07/10/2013 (4627 days ago), so information in it may no longer be current.

DO voters really punish governments for tax hikes?

Political science and provincial history offer confusing clues.

In 1997, two University of Alberta economics professors used some fancy mathematical modelling to look at whether voters reward or punish provincial governments who spent big on programs, took on debt or raised various kinds of taxes.

They analyzed dozens of elections over the last 40 years and found boosting the sales tax had “a significant positive impact on the probability of defeat,” even if the money was used to boost spending. Voters also preferred user fees over broad taxes, but didn’t mind much if provincial governments took on more debt to fund spending.

A much more recent study out of Germany bolstered those findings, suggesting that taxation significantly shrunk government popularity over the period 1978 to 2003 in that country. Interestingly, the effect did not automatically give opposition parties a boost.

Big tax changes, such as the introduction of the GST by Prime Minister Brian Mulroney in 1989 and the messy reversal of the harmonized sales tax in British Columbia more recently, have often come with some political fallout. But the political costs of more modest increases to existing taxes are harder to gauge.

In 1988, Liberal Premier David Peterson hiked Ontario’s sales tax by a point, with little blowback. In fact, Peterson caught more flak in the next election for proposing to cut the sales tax, which many saw as cynical and desperate.

Next door to us, the Saskatchewan government under NDP Premier Lorne Calvert played roller- coaster with that province’s sales tax between 2004 and 2006. First, during a period of austerity, the PST was hiked by a point to seven per cent. Then, when the economic boom now gripping Saskatchewan started a couple of years later, Calvert slashed the sales tax to five per cent as a tough election drew closer. The decision did not prolong the NDP’s 19-year dynasty. Calvert was defeated by Saskatchewan Party leader Brad Wall in 2007.

 

— Mary Agnes Welch