Wednesday, September 13, 2006

Charest flip-flops; now wants to swap "points" on sales taxes

A few months back, Jean Charest said that a tradeoff in a reduction of the GST in exchange for an increase in provincial sales taxes was not in the cards. But Tuesday evening, he was singing a different tune. According to Radio Canada, Charest now thinks he may be able to solve the so-called fiscal imbalance by getting the feds to cut the GST down to 5% now, not five years down the road as Stephen Harper promised. In exchange, the provinces would increase their sales tax by one percent. For Québec, it would mean another $1.2 billion in revenue per year; for Ontario, $2 billion. Since Québec is looking for another two billion per year, they think they can make up the difference (800 million) by getting Harper to transfer the money that was supposed to be spent on child care as well as letting provinces keep 50% of natural resources royalties in the calculation of equalization payments.

No question, the formula for making sure "have not" provinces have sufficient revenues for social programs needs to be revamped. But the part about sales taxes? I don't know about the rest of you, but we tried tax points with income taxes during the 1970s and it proved to be a classic game of robbing Peter to pay Paul. This does not solve the fiscal imbalance. Instead, it puts provincial governments at even greater mercy -- and with a recession possibly looming it could be a disaster. Charest says this is an opening position. The Harper government might see it as a final offer ... but the thought of handing over that much money to the provinces is probably going to rankle them.

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