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Desperate, expensive gamble to save HST

VICTORIA - Governments aren't supposed to make tax policy like this. The Liberals' latest attempt to save the HST is a dramatic flip-flop on tax principles they said were essential for the province's future.

VICTORIA - Governments aren't supposed to make tax policy like this.

The Liberals' latest attempt to save the HST is a dramatic flip-flop on tax principles they said were essential for the province's future.

Finance Minister Kevin Falcon unveiled the changes Wednesday. If voters decide to stick with the HST in this summer's referendum, he said, then the government promises to cut the rate from 12 per cent to 11 per cent on July 1, 2012. There would be another cut to 10 per cent on July 1, 2014, he pledged, assuming the Liberals are still in office.

By 2014, Falcon claimed, the tax burden on individuals and families would be less than it was under the provincial sales tax. The HST is now costing a family with a household income of $70,000 about $525 a year in extra taxes.

But wait, as they say on late-night infomercials, there's more. If voters stick with the HST, the government will send out one-time payments to help cover some of the increased tax burden. Families with children under 18 will get $175 per child; low-income seniors would also get $175.

The measures are expensive. The cheque mailout would cost about $200 million.

Cutting the HST rate by one percentage point, according to Falcon, would cost the government about $850 million in revenue. By 2014, the government would be taking in about $1.7 billion less than planned every year.

No worries, says Falcon. The government would still balance the budget by 2013/14.

But it's not clear how.

Falcon said that if the HST is approved in the referendum, the government would raise the corporate income tax rate from 10 per cent to 12 per cent, reversing past cuts. It wouldn't go ahead with a scheduled reduction in the small business tax rate. That would help make up for the lost HST revenue, he said.

But it wouldn't help much. The corporate tax increase would raise about $300 million. That's far short of the $1.7 billion in lost revenue from the HST cut. (And it's less than half the tax reduction corporations received as result of the HST tax shift from businesses to individuals and families.)

There's time for the government to offer a revised budget for the next three years before the referendum, showing how it would make up for the lost revenue. And it should if it expects the public to take the promises seriously.

It faces a tougher challenge in justifying what looks a desperate lurch that contradicts the principles the Liberals had insisted were critical to the province's future.

Take the corporate tax increase. When NDP leader Adrian Dix advocated the same tax change, Falcon said raising corporate taxes would would threaten the fragile economic recovery. Education Minister George Abbott said the proposal represented "the leading edge of 18th-century socialism in this province." Now both support the Dix policy.

Or the HST rate cut. When Falcon proposed an HST rate reduction during his leadership campaign, Clark was sharply critical, saying the government couldn't afford to give up billions in revenue.

Falcon defended the flip-flops by saying the government was simply responding to the concerns raised by people who participated in telephone "town hall" sessions on the tax.

A lot of voters will likely wonder why the government didn't listen before introducing the tax, or in the almost two years since it announced the surprise tax weeks after ruling it out during the 2009 election campaign.

The tax measures represent the Liberals' last effort to save the HST from defeat in the coming referendum. They might backfire, if they are seen as another poorly planned tax change or an attempt to bribe people to vote for the tax.

But the changes could reduce the additional HST burden for individuals and families, while allowing the province to avoid the complicated - and costly - process of backing out of the tax.

That is, if voters decide they can trust a government which has consistently provided inaccurate or false information about this tax.

Footnote: The New Democrats seized on past comments from Clark in question period Wednesday. During the leadership campaign, she rejected Falcon's call for a rate cut. "Cutting the HST by one point is more than $800 million out of the budget this year and every year after, $1.6 billion for a two-point cut, and we need to ask ourselves where we're going to get that money, because we're either going to have a $1.6-billion bigger deficit, or we're going to get $1.6 billion fewer heart operations, special needs teachers, school facilities, hospital emergency rooms."

After winning the leadership, Clark ruled out trying to reduce the rate before the referendum. "I think people will see that as buying them with their own money."