December 1, 2010 / 7:03 PM / in 7 years

Tax policy in limbo in British Columbia as leader quits

VANCOUVER (Reuters) - After nearly a decade of relative calm, the political scene on Canada’s Pacific Coast has been thrown into turmoil by the resignation of Premier Gordon Campbell and a fight over taxes.

While polls indicate the Liberal government has regained some public support with Campbell’s decision to quit, it faces the risks of a leadership race, recall campaigns and a referendum on unpopular tax changes.

Campbell has been premier for nine years and has a reputation as a somewhat autocratic leader. Observers expect a new style going forward for the right-of-center government.

“The major change will be to present the leader as a kinder, gentler person than Campbell,” said Marjorie Griffin Cohen, a political scientist at Simon Fraser University.

The leadership vote is scheduled for February 26, and Campbell plans to remain as premier until a replacement is chosen. The Liberals have been in power since 2001 and the next provincial election is due in 2013.

Four Liberal legislators, Kevin Falcon, George Abbott, Michael de Jong and Moira Stilwell, have resigned from cabinet to run for the leadership. Christy Clark, a radio talk show host who previously served in government, is expected to run.

One policy that might change is the harmonized sales tax, created in a deal the province struck Ottawa last year to merge the provincial and federal sales taxes. The tax, which took effect July 1, is administered largely by Ottawa and applies to a more goods and services than the levy it replaced.

The province says the new tax regime helps companies cut costs and remain competitive with rivals in provinces that already have the tax. Opponents say it simply shifts more of the tax burden to consumers and small businesses.

Opponents of the tax collected enough signatures on a petition to force a referendum to repeal the tax and return to the old system. The vote is scheduled for September.

The leadership candidates support the tax, although one wants to cut it to 10 percent from 12 percent.

The Finance Ministry has warned that eliminating the HST could cost the province C$5 billion ($4.9 billion).

The anti-HST groups have also attempted to mount recall campaigns against individual legislators, with a first petition due to start later this month.

With his support at a paltry 9 percent, Campbell proposed a 15 percent cut in personal income tax days before he said he would resign. The government has put that idea on hold so the new premier can decide whether to proceed.

“The big unknown going forward is whether that cut is going to be put back in place,” said Robert Kavcic, who monitors the fiscal policies of Canada’s provinces for BMO CM Economics.

British Columbia must release its next budget by February 15, before the leadership vote, and it will be a “status quo” plan in light of the political vacuum.

The current budget sees a deficit at just under C$1.7 billion and total taxpayer supported debt of nearly C$33.8 billion, for a debt-to-GDP ratio of 16.8 percent.

Kavcic said the British Columbia economy is stronger than most other provinces, which should allow it to return to budget surpluses in the near future.

($1=$1.02 Canadian)

Reporting Allan Dowd; editing by Rob Wilson

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