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Tax policy by referendum: British Columbia’s unharmonized tax reform

by John Richards

There is a parallel between the student protests in 2012 leading to cancellation of Quebec’s tuition fee increases and the referendum a year earlier that put a stop to sales tax reform in British Columbia. No one likes paying higher taxes or fees. But, viewed objectively, former Quebec Premier Jean Charest had a good case – as did former B.C. Premier Gordon Campbell.1

Charest defended his proposed university tuition fee increases in terms of both efficiency and equity. The efficiency case: Quebec imposes high tax rates, has a large public debt and is running deficits that, in the medium term, are untenable. Other provinces have demonstrated that higher student fees do not discourage student enrolment (Quebec enrolment is below the Canadian average despite very low fees). The equity case: Students are overwhelmingly from families with above-average incomes, and their degrees will enable them in turn to earn above-average incomes. Hence, for reasons of both efficiency and equity students should bear a larger share of the university costs they generate.

Rather than rebut Charest’s case, the students successfully changed the debate into “questions of principle.” Can a government, thanks to its commanding a majority in a legislature, legitimately legislate whatever level of taxes – or fees – it dictates? If a significant number of people object strongly to a tax or fee, should a government be required to seek additional democratic legitimacy, say by submitting the proposal to a referendum? Students answered no to the first question and yes to the second. I disagree. My answers are yes to the first question and no to the second.

The same questions can be asked in relation to B.C.’s debate over its harmonized sales tax, in which ex-Premier Bill Vander Zalm led a successful referendum campaign that culminated in the government rescinding the HST. For the first time, Canadians decided a major tax policy in a referendum, as opposed to in a general election in which voters weigh a government’s tax decisions against other considerations. While this was the first tax referendum in Canadian history, it may not be the last.

At first sight, Quebec student leaders and Vander Zalm do not have much in common. The student leaders take inspiration from the Occupy movement and French socialist traditions of tuition-free universities; Vander Zalm is a populist in the American Tea Party tradition. There are differences between the campaigns. The students generated sufficient civil disobedience to precipitate an early general election, and the winning party, the Parti Québécois, rescinded the fee increase. While a large minority supported the students, opinion polls suggested the majority did not. B.C. has referendum legislation on the books, and Vander Zalm’s campaign successfully exploited it. What the two events have in common is that both successfully challenged the legitimacy of a major revenue-raising decision enacted by a duly elected government.

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About the Author

John Richards
John Richards is co-publisher of Inroads and an economist at Simon Fraser University in Vancouver.


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