Taking the HST off hydro is bad policy, if good politics
May 12, 2014

Taking the HST off hydro is bad policy, if good politics

One of the signature campaign planks for the NDP in the 2014 Ontario Election is to remove the HST from our hydro bills, saving perhaps $120 a year for average families. The motivation behind this - reducing the cost to average families - is reasonable and will undoubtedly be a persuasive policy plank in the election. Who doesn't want to save $120? Unfortunately, the policy is detrimental and should not be supported.

There are numerous ways to save people this $120 dollars. You could reduce, say, their income taxes; you could reduce other costs; heck, you could just write checks to them. Having families save money I don't object to, the question is why use this particular method - taxes on hydro - to give this savings?

Any taxation or spending scheme comes with incentives. If you make child care cheaper (as the NDP laudably wants to do) then people are more incentivized to make use of child care. If you make the cost of electricity higher, people are incentivized to use less electricity. If the goal is simply to reduce net costs to people, we should choose the mechanism that creates incentive structures that further various social goals we might have.

There is a strong case why we might like to put disincentives up against using electricity. Namely, in the interests of a sustainable future we should try to reduce our net electricity usage and, further, shift the balance of the production into sustainable energy sources. This is why I have supported the BC carbon tax, for instance. Yes, a tax costs money if we only consider that single file. However, we can easily make adjustments on other files such that the net cost is deficit neutral, and neutral on a progressive/regressive spectrum. The latter of these is important: for costs - and arguably hydro is one of these - that are regressive by nature, one needs to combat them with progressive offset schemes.

In general, the HST is applied relatively broadly. Indeed, part of its virtue as an efficient tax rests on this.  However, there are exceptions such as for children's clothing, public transit (in BC, at least), and so on. For these exemptions, they are categories where there is no apparent net social cost if people do consume slightly more of these "essential" categories. Indeed, people using public transit more would appear to be a net social benefit.

For power, however, the situation is the opposite. If the increased costs create incentives to not have your air conditioner quite as high, your showers just a bit shorter, then the net benefit - reduced need for electricity infrastructure and reduced greenhouse gases - manifests itself. Yes, some used power is undoubtedly "essential", but not all of it is. It is the nonessential part that we want to create disincentives on.

Promising extra dollars in peoples pockets will always be a good election tactic. However, the NDP has the responsibility to make such promises in the context of sound policy. In this instance, they have failed to do just that. 

Thoughts on this post? Comment below!

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Mike's Opinion said...

What a bunch of Drivel!!!!!! Government should not tax necessities like electricity or fuel used for home heating.
There are plenty of revenue sources available that do not put extra burdens on the low income households in the province.

bazie said...

For clarity, my contention was *not* to put extra burdens on low income households. Indeed, your point that there are lots of revenue sources available has the flip side that there are lots of ways to help reduce costs to households, so why is this way a particularly good one? I argued that it was a bad one, not that we shouldn't help low income households.

I also don't accept that all electricity usage is necessities. Some of it undoubtedly is. But there is a lot of luxury in there as well.

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