A Tax on Tax and Quebec Compensation

In the summer of 2009, my wife and I decided to purchase a new vehicle.  After much looking around, we ended up picking up a Subaru Forester (and thereby securing the employment of 2.41 oilsands workers for 1.7234 years, but more on that later...) as we felt that, for a wide variety of reasons, this would serve our purposes.   And...as good free-marketers,  we purchased the vehicle in North Dakota as the cost savings was nearly $5700 with a full warranty, even after duty and exchange etc.   So...when we went to pay our duties and taxes at the CBSA station, I was a bit surprised as to why the figures out I calculated were off.   As it turns out, I was being charged GST on top of the Air Conditioning Tax I had to pay.  GRRR....Of course, we get into this issue all the time with GST and PST being charged on top of gas taxes...so...I have to go GRRR...again.

Now...expand this little story, if you may to the federal government budget on Monday.    Amongst the bits of the budget (Jim Flaherty had way too much fun to present this, by the way), was an item promising $2.2 Billion in compensation to Quebec for their Harmonized Sales Tax.   As a matter of public policy, I actually like the concept of HST as I think that long term, it creates efficiencies in our overall tax code.  (As an aside, the concept of this as public policy is distinct from how it was sold as per the debacle in British Columbia that led to Gordon Campbell's downfall and Christy Clark's ascendancy).   There are also legitimate concerns about prior partially exempt services that now feel the pinch of the HST, so from a cash grab point of view there are a variety of rebates that could be applied (although to raise corporate taxes as per Christy Clark in BC  would be an epic fail from my perspective).

In any case, Quebec's concerns about not being compensated fairly are legitimate.   If the Atlantic provinces could be compensated in the 1990s, and if Ontario gets $4.3 Billion and BC would get $1.6 Billion respectively from the Feds - well fair is far.

Here is what I have a fundamental disagreement with, though...in Quebec (and to my chagrin...PEI), the HST is calculated on top of the base cost of goods and services AND the 5% GST portion.  In every other province with HST, the PST portion is caculated on the base costs of goods and services ONLY.   Thus...in Quebec...this is tax on tax.  Instead of an advertised 13.5%, this is an actual tax rate of 13.92%.    So...I think that there should be a clawback of $88 Million to reflect the extra 4% in revenue Quebec is getting over other parts of the country that get/proposing HST compensation.  The problem here, though, is that to do this would infuriate the soverignists and then we start getting deeper into the pandering of Quebec/assymetrical federalism issues all over again.   Heck..if a $15 million cut in the Arts somehow became an attack by Stephen Harper on Quebec culture, how would a clawback of $88 Million (to make it in-line with other provinces) look like?

Sigh...