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Dislike the politics, not the tax

Photo by Rick Chung, used by Creative Commons agreement
Posted on Thursday, 1 November 2012
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“I think the HST is a good thing for PEI, in terms of the Island economy and the direction that public finances are going,” says Dr. Jim Sentance. Stacks of papers and tomes on economic theory fill his office in UPEI’s Main Building.

“I think the negative reaction we’re hearing is more in response to how it has been rolled out. It’s politically unpalatable, and could lead to a backlash such as we saw in British Columbia. Which is a shame.”

Dr. Sentance is a Professor of Economics at UPEI and chair of his department. He is generally in favour of the proposed Harmonized Sales Tax, but is concerned about its unpopularity among Islanders.

“What many Islanders believe is that the governing Liberals always said they would not adopt the HST and that they have since flip-flopped on the idea,” says Dr. Sentence. “And, really, some Liberal candidates in the last election did say no to it.”

Dr. Sentance says that senior Liberals, such as the premier and senior cabinet members, were much more careful with their language.

“You would have heard them say things such as ‘the HST is not currently on the table’ or that they wouldn’t consider adopting the HST unless they could get conditions built in from Ottawa that would ensure that low-income Islanders weren’t negatively affected.”

Still, he believes that, ideally, it should have been more openly discussed in the last election or at least presented to Islanders in a more open and consultative fashion once the government decided to go that direction.

Dr. Sentance predicts transfer payments from the federal government are going to decrease in the coming years. PEI and the rest of the provinces need to be more self-reliant and need to raise more revenue at home, which means not just higher tax rates but improving the tax base.

“The PEI economy has problems,” says Dr. Sentance, “and one problem we can actually do something about is the way we collect tax. The current PST imposes significant taxes on investment, which makes it very difficult to expand existing or attract new businesses. Especially when you consider that provinces with HST provide a tax rebate on investment.”

The biggest difference consumers will see under the HST will be the increased amount of tax on items such as electricity, clothes, and footwear. Dr. Sentance explains there is a longer list of items that will be taxed at a lower rate, but only by a percent or so. He says Islanders overall will be paying more taxes, but feels that amount has been exaggerated by HST critics.

“What people don’t understand is that we’re already paying most of the increase in tax that we’re going to see. Businesses are burying it in the price of their goods. Under HST, they won’t have to do that, and prices will generally reflect that by going down, as we’ve seen in other provinces.”

Looking to the future, as MLAs return for a fall sitting of the legislature, Dr. Sentance expects a renewed call for a referendum on HST.

“I’m not sure that’s a great idea,” he says. “I’m not confident a large enough portion of the population really understands what adopting the HST means. While I have a lot of sympathy with the anger about how it’s been brought in, at the end of the day I think policy should be judged on its merits. I’m concerned it would be voted down because of the way that it’s being implemented.”