According to a statement from the federal finance department on Wednesday, “the federal government will take any necessary steps to ensure that the [HST] rate increase does not come into effect on January 1, 2016.” [CBC]
That came out of the first meeting between Prime Minister Justin Trudeau and Premier-designate Dwight Ball.
Ball wrote two federal cabinet ministers last week asking them to do what they needed to do in order to halt the two percent increase in the harmonized sales tax included in the provincial Conservatives’ spring budget. Ball promised last spring to roll back the rate hike.
But what would have to happen in order to halt the hike?
There’s a clue in Ball’s letter.
Here are the key paragraphs:
Since the time of Magna Carta, rulers haven’t been able to tax the people or make a change to the tax without their consent. They can’t impose a tax, can’t hike a tax, or cut a tax without a law approved by the legislature.
Since the harmonised sales tax is a joint federal-provincial tax, the two governments have an agreement on how to manage it. The document is called the Comprehensive Integrated Tax Coordination Agreement and in 2010, the legislature passed the Tax Agreement Act, 2010 to give it force.
Section 43 of the CITCA says that the provincial government must give the federal government 120 days notice of a proposed change. The governments can change that by agreement.
Section 44 sets the date of change as either the first of January, April or July.
Section 45 is the key. To change the rate, the provincial government has to give the federal government and the public 60 days notice. Ball’s letter includes a reference to his statement that the party would repeal the increase if it won the election. The provincial government also has to introduce the appropriate legislation within a reasonable period of time.
All of the provisions in section 45 can be changed by mutual agreement of the provincial and federal governments.
Ball states in the letter that the provincial legislature passed the laws needed to put the tax hike in place. Ball doesn’t intend to call the legislature back until well into the New Year to reverse the tax hike. What Ball refers to is actually a law affecting the HST rebate. There doesn’t seem to be any law specifically related to the HST rate. The supply bill and the government’s stated intention to raise the tax rate seems to have been enough to meet the CITCA’s requirements.
What that seems to mean is that next week, Dwight or the new finance minister will have to give formal notice to the federal government of the change to the provincial rate. That’s when Dwight will actually have the legal authority to notify the federal government. They can also work out the details of the agreement under section 45 of the CITCA to waive the notice period.
Since the tax is really a federal tax shared between the two governments, the legal side of this is largely a federal problem. If the feds are willing to take on the heavy lifting here, the provincial government’s role is relatively light. They will have to introduce an amendment to the Income Tax Act to allow for the HST rebate changes. As for the rate, the Liberals can retroactively drop that rate in the new budget bill just like their predecessors raised it.
But this switcheroo won’t come without consequences. People have already been paying the new rate if the transaction falls under the so-called transitional rules. Those folks are going to be entitled to a rebate.
The biggest take-away from this is that the provincial government can manage to get things done in Ottawa. Having friends in high places is important. By all appearances, the new provincial administration has got friends in Ottawa where the crowd on the way out the door just kept making enemies all over the place.
It will be interesting to see if the pair can come to an agreement on the federal-provincial free trade deal that Paul Davis had with Stephen Harper but screwed up with an amateur political stunt.