HST debate takes different tacks in Ontario and B.C.

Amazing to think something pitched as an administrative cost-saver for government and business has led to the downfall of one B.C. premier and possibly the province's government.

It's also going to factor into next fall's Ontario election and could trigger one of those quintessentially Canadian spats between Ottawa and Quebec.

The ironically named harmonized sales tax has been in place in Ontario and British Columbia for a year but remains a live, divisive political issue. Quebec has had its "distinct" form of HST since the early 1990s but public demands for compensation have surfaced only since B.C. and Ontario got some.

Meanwhile, ballots will be mailed out to B.C. voters soon for a referendum to kill the HST, which stands at 12 per cent (five per cent federal GST and seven per cent provincial sales tax), and go back to separate GST and PST. That will trigger a messy negotiation with Ottawa for the return of $1.6 billion in transition money, and maybe a fall provincial election two years before the B.C. Liberal government's fixed mandate runs out.

Gordon Campbell, whose B.C. Liberals crushed the governing New Democrats in 2001, was unceremoniously dumped as premier this winter in the wake of furious and sustained opposition to the tax. Campbell opened HST talks with Ottawa in 2009 just weeks after winning his third term in a campaign where he denied a deal was on the Liberals' radar. Voters felt duped.

The premier argued the quick deal was necessary to stay competitive with Ontario, which was also in talks. And even though more products and services would be taxed, like restaurant meals and haircuts, Campbell argued consumers wouldn't be hurt because business would pass on its administrative savings as lower prices.

Unappeased, opponents used the province's unique Recall and Initiative Act to collect more than half a million signatures, forcing the legislature to reconsider the tax. A committee opted for a referendum on whether to return to separate provincial and federal sales taxes.

While anti-HST protests petered out in Ontario, they gained momentum in B.C.

"The recall and the referendum (process) provided citizens with some ready instruments to mobilize around," says Michael Prince, a political scientist at the University of Victoria.

Campbell, respected by business but largely unloved by voters, saw his poll numbers sink into single digits. Out he went. Opposition New Democrats, fearful of facing a renewed Liberal party, also ditched centrist leader Carole James in favour of no-nonsense lefty Adrian Dix.

The Liberals picked former education minister Christy Clark, back in politics after a sabbatical as a radio open-line host. Clark, charismatic single mum of a young son, quickly face-lifted the government and reoriented its policies away from corporate B.C. to be more family friendly.

An HST supporter, Clark promised to cut the rate two percentage points - to 10 per cent - by 2014 if the anti-HST referendum fails and the Liberals win re-election. To offset potential revenue losses, the government would raise the corporate income tax rate and defer a small-business tax reduction.

The changes were aimed to mitigate the affect of the HST on families. An government-appointed independent panel found the HST's economic benefits had been oversold, that it shifted hundreds of dollars of new taxes onto families and provided a revenue windfall for the government.

HST supporters hope Clark's moves, plus the passage of time as people got used to the HST, will help it survive this summer's referendum. A recent poll suggests views now are almost equally split and pro-HST forces are spending heavily on advertising. A campaign to recall several government MLAs over the tax has also largely fizzled.

But Bill Tieleman, a commentator, former NDP operative and organizer of the anti-HST petition, believes voters will reject the tax by a 60 per cent margin.

"I think people have made up their minds and they're not going to accept pig-in-a-poke promises of potential rate cuts down the line from politicians who want to get re-elected," Tieleman says.

The referendum results may influence whether Clark calls a snap provincial election this fall, rather than wait until the end of the Liberal mandate in May 2013. The outcome will likely also be closely watched in Ontario, which is headed to the polls Oct. 6.

Like B.C. consumers, Ontarians began paying HST last July 1 but opposition has been more muted, perhaps because they lack the kind of outlet B.C.'s initiative and recall law provides.

Instead, it looks like voters will be asked to pronounce on the tax in the Oct. 6 provincial election. Liberal Premier Dalton McGuinty remains staunchly supportive of the 13-per cent tax but his Conservative and New Democrat opponents promise they'll exempt home heating and power bills from HST if elected. McGuinty has leaned on rebate payments to taxpayers from a $4.3-billion federal kitty to lessen the pain.

The Canadian Taxpayers Federation backs Christy Clark's promised rate cut and says McGuinty might disarm his opponents in Ontario by doing the same. The problem, says federation national research director Derek Fildebrandt, is that he's broken promises on taxes before.

"People can't believe him on the issue," he says. "He's got no credibility."

Quebec's situation is distinctly different. Most importantly, the province and not Canada Revenue Agency administers the combined GST/QST. It made the arrangement with Ottawa almost two decades ago without any money changing hands. It also levies the QST component on top of the GST, goosing the effective rate beyond the stated 13.5 per cent and adding hundreds of millions of additional dollars to Quebec coffers.

Quebec now is asking for more than $2 billion in retroactive compensation. Negotiations have been underway since last year and some observers think elements of a deal might surface in the upcoming federal budget.

Whatever is in it is bound to upset someone. A cash settlement will be seen as another handout to Quebec and any shift of taxation control to the federal government would anger Quebec nationalists.

"There's no way Quebec would agree to transfer (administration) back to Ottawa," says Prince.

However, Liberal Premier Jean Charest's deeply unpopular government would like to take some prize into his upcoming election. And the Conservative government would probably like a deal to improve its position in NDP-dominated Quebec.