A referendum to raise HST in New Brunswick would be political risk: pundits

FREDERICTON – New Brunswick’s premier is musing about the possibility of holding a referendum on increasing its sales tax before the next election, an idea that analysts say would come with huge political risks.

When David Alward’s Progressive Conservative party won the 2010 provincial election, they promised a plan to stabilize the province’s finances without raising taxes or cutting services. Despite spending cuts, the government faces a worsening financial picture, including a deficit for 2012-13 that has more than doubled to at least $411 million.

That’s led to the possibility of raising the harmonized sales tax, something Alward would need voters to approve under New Brunswick’s Taxpayer Protection Act, which requires an election mandate or a referendum victory for the government to introduce a new tax, raise the HST or impose highway tolls.

But Geoff Martin, a political scientist at Mount Allison University in Sackville, N.B, says a referendum would be a political gamble for Alward with about 18 months left in his mandate.

“I have a very bad feeling about this politically,” he said. “It’s an initiative born of not being able to succeed or muster the political will to make the tough decisions they said were necessary.”

Finance Minister Blaine Higgs has suggested a variety of ways to generate revenue, such as rescinding previous cuts in personal and corporate income taxes, raising consumption taxes, imposing highway tolls, increasing the harmonized sales tax or introducing a health levy.

Although Alward recently raised a referendum as a possibility before next year’s election, he also said it’s premature to conclude one will be held.

Martin thinks time is working against the government as well.

“I think it’s already too late to do it now or any time in the next 18 months,” he added.

But if the government were to go ahead with a referendum, Martin said it’s a big risk, especially if the public rejects the tax increase.

Don Desserud, a long-time observer of New Brunswick politics, said the public could harshly judge a government that holds a referendum and an election in a short period of time.

“There’s a fatigue factor that sets in,” said Desserud, who is dean of arts at the University of Prince Edward Island. “I can see a rationale for doing it, but it does bring a lot of problems with it.”

Both analysts say the referendum question would have to be clearly worded and the government would have to remain neutral.

Desserud said if the Tories didn’t remain neutral, the resources at its disposal would overshadow the other side.

“Then it’s not a balanced debate, and the public will see this as being a propaganda campaign,” Desserud said.

Martin said the Opposition parties would also have to walk a fine line because there could be backlash against any party that actively campaigns on one side or the other.

In British Columbia, the Liberal government was forced to scrap the HST as the result of a citizen-initiated referendum.

Hamish Telford, a political scientist at the University of the Fraser Valley, said voters there felt deceived when the HST was first introduced because the Liberal government had previously said it was “not on the radar.”

“The party really carries the burden of having made that decision,” he said. “Their reputation has been tarnished.”

Telford said New Brunswick’s situation is different from British Columbia’s because the province would be asking to increase a tax that already exists.

New Brunswick’s Department of Finance says increasing the HST by two percentage points would generate $270 million a year in revenue. Rescinding personal and corporate income tax cuts brought in by the previous Liberal government would generate about $345 million a year.

The New Brunswick Business Council said it supports increasing the corporate income tax, while economists say raising personal income taxes would be fairer to low- and middle-income families than an increase in the sales tax.

Deputy premier Paul Robichaud said the question of a referendum is “hypothetical” with little chance of it actually happening.

“It would make more sense to have a referendum at a general or municipal election and not having a sole referendum on a sole question that will cost $6 million to the taxpayers,” Robichaud said.

But Hedard Albert, the Liberal finance critic, said a referendum is possible.

“We know now they have no solid plan,” he said.

Desserud said people need to have leaders who are decisive.

“As much as the public wants to be involved in decision making and have a democratic voice, the problem is always going to be balanced with what the public really wants is governments to lead and show leadership,” he said.

Martin said that can be done by raising other taxes and not hiking the HST.

But Tom Bateman, a political scientist at St. Thomas University in Fredericton, takes a different view.

He said if the Alward government is able to educate the public on the financial situation before calling a referendum, it could be a “win-win” situation for them.

“If the electorate refuses such a proposal then the provincial government can say … the only alternative is to cut spending,” Bateman said.

“It would be a much tougher decision to impose a tax without any popular consultation or against public opinion. This one puts the matter in New Brunswickers’ hands, and that’s easier, I think.”