June 30, 2010 / 9:23 PM / in 7 years

Tax fight on Canada's Pacific coast gains traction

VANCOUVER (Reuters) - British Columbia’s tax revolt picked up speed on Wednesday, with organizers filing referendum petitions they say should force the province to scrap a controversial deal with Ottawa.

The battle over the Harmonized Sales Tax (HST), which takes effect on Thursday, has hammered the political fortunes of Premier Gordon Campbell and his right-of-center BC Liberal Party that has governed the province since 2001.

HST opponents were held a rally in provincial capital of Victoria to give election officials petitions with more than 700,000 voter signatures supporting a repeal of the merger of the provincial and federal sales taxes.

If the signature petitions are certified, British Columbia’s Legislature would either have to reconsider its approval of the HST or put the issue to public vote.

Under a deal signed with the federal government last year, British Columbia agreed to create the 12 percent HST by merging its 7 percent sales tax with the federal 5 percent goods and services tax.

The two taxes had been collected separately with different rules on what was considered taxable.

Although the total rate remains the same, opponents say it will increase people’s costs because they will have to pay the full 12 percent tax on many goods and services that had only been subject to federal tax before.

But the government says HST will help British Columbia’s economy by reducing C$2 billion tax and administrative costs on the goods and services used by businesses. The lower costs can then be passed on to consumers, HST supporters say.

Campbell struck the deal with Ottawa shortly after Ontario made a similar agreement. British Columbia had to adopt the HST to remain economically competitive, he says.

“The HST has not been good short-term politics. But in the end, everyone has to decide whether they are going to do what is right or what is easy,” Campbell wrote in an editorial printed on Wednesday.

“I believe the HST is the right thing for our Province’s economy and for our children’s future,” he wrote.

TAX COSTS PREMIER SUPPORT

The HST was unveiled last summer just weeks after Campbell won re-election for a third term as premier. A polls have found the Liberals now have only about 26 percent vote support, far behind that of the opposition New Democrats.

The tax fight has also exposed divisions in the BC Liberal Party, which despite its name is more politically akin to the federal Conservative Party than the federal Liberals.

The BC Liberals traditionally enjoy strong business support, the HST has split large industry groups that support HST and owners of small businesses, many of whom aided the anti-tax petition drive.

Industry associations that support the HST moved on Tuesday to derail the petition drive, by asking the courts to rule if the tax repeal measure is constitutional.

“It’s a really desperate move by a desperate government using their friends to do their dirty work,” Chris Delaney, a leader of the anti-HST campaign told a radio interviewer on Wednesday.

The federal Conservative government agreed to pay British Columbia C$1.6 billion to adopt the HST, but has tried to distance itself from the fight. The province is using the money to reduce its budget deficit.

Finance Minister Jim Flaherty has brushed aside questions about the HST controversy during recent visits to British Columbia by saying it was a provincial, and not a federal, issue.

A HST tax regime also takes effect on Thursday in Ontario, Canada’s most populous province.

Reporting by Allan Dowd, Editing by Frank McGurty

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