Why are politicians still terrified of taxing Netflix?

Stephen Harper made it next to impossible heading into the 2015 election for any political party to propose a tax on Netflix, Google and other foreign online services. But two provinces are now charging sales tax on those foreign media companies, suggesting that at least some governments now see the economic benefits outweighing the political risks.

There's no economic argument against taxing online services. The political argument is getting weaker, too

Attendees wait in line to enter the Netflix booth at Comic Con International in San Diego, California, U.S., July 21, 2017. (Mike Blake/REUTERS)

Stephen Harper made it next to impossible heading into the 2015 election for any political party to propose a tax on Netflix, Google and other foreign online services.

But two provinces are now charging sales tax on those foreign media companies, suggesting that at least some politicians now see the economic benefits outweighing the political risks.

"This is an issue of fairness," said social policy analyst John Anderson, who has written extensively on the digital economy. "It's not a left-right issue. It's about ensuring that we allow Canadian companies to compete on a level playing field."

Four years ago, the Conservatives sent out an ad blast featuring Harper saying that only his party "could be trusted not to bring forward a new Netflix tax." It didn't get him re-elected, but the other major party leaders quickly fell into line.

NDP Leader Tom Mulcair said his party had no plans to bring in a tax, a position that's since been reversed by his successor, Jagmeet Singh.

The answer from the federal Liberals on the question of taxing digital services, then and now, has been a resounding 'no'. On the other hand, a spokesman for Finance Minister Bill Morneau says Canada continues to work with other countries in the Organization for Economic Development and Cooperation to come up with a policy on taxing digital companies.

Why wait?

Conservative Leader Stephen Harper effectively shut down debate on taxing online services like Netflix during the 2015 election. (Twitter)

Quebec was the first province to charge the PST on foreign digital sales. In the first three months of this year, Anderson said, the province took in $15.5 million in revenue — far more than the original forecast.

Saskatchewan also is requiring companies like Netflix to start collecting the province's six per cent sales tax from its customers, arguing SaskTel, Shaw and other Canadian online service providers already do it.

Neither province experienced a consumer revolt.

University of Calgary economist Jack Mintz said the idea of charging federal sales tax on e-commerce is attractive on a number of fronts — chief among them the fact that sales taxes are far less likely to spark international disputes than attempts to tax the corporate profits of huge multinational companies based in other countries, like Google, Amazon, Facebook and Spotify.

"I just don't see why we don't do it," said Mintz. "Why should consumers pay sales tax on Rogers, Bell and other domestic internet services and not on foreign companies? Why allow the tax system to influence people's consumer choices?"

A taxation taboo

The answer, of course, is politics. Proposing to raise taxes in an election year is, to paraphrase Winston Churchill, like standing in a bucket and trying to lift yourself up by the handle.

Anderson said Harper tried to provoke the public into accepting the idea that a tax on Netflix would be a special tax, something groundbreaking, rather than simply a measure to ensure the company faced the same requirements as everyone else.

It worked. None of the other main parties went into the last election proposing a tax on online services.

Four years later, there's still considerable political pressure to do nothing.

The Liberals already are facing voter pushback in provinces where they've imposed a carbon tax, said Mintz, while the Conservatives will never campaign on raising taxes.

A tax system stuck in the past

That leaves the NDP alone among the three major parties in favouring a federal tax that analysts like Anderson say could raise as much as $360 million a year — while eliminating a significant competitive advantage enjoyed by some of the very biggest multinational companies in the world.

Anderson said debate over a "Netflix tax" masks a bigger problem with Canada's tax system: from streaming video to online retail to e-books, the online marketplace is exploding, while our tax laws stand still.

Stats Can reported last August that nearly two-thirds of Canadians aged 18 or older spent a collective $2 billion on music and video downloads and other streaming services in the 12-month period ending last June.

The way people shop, and where they spend their money, is changing fast. Canada isn't keeping pace.

"The economy is shifting to e-commerce," Anderson said. "And that means taxing those services is only going to grow in importance."

Just last week, the auditor general reported that the federal government passed up an estimated $169 million in GST revenues in 2017 on foreign digital products sold in Canada.

Quebec Liberal MP Steve MacKinnon said the Trudeau government isn't deaf to the arguments coming from Canadian content producers — that foreign-based online services like Netflix are enjoying an unfair taxation advantage here.

"We know that the economy is undergoing significant change. We want to create a regime that is durable and fair to Canadian companies," he said. "That's what I've been advocating for and my colleagues are advocating for."

Netflix already has indicated it would collect and remit GST or HST if the federal law changes.

For now, it appears it won't. Not until after the next election, at least.

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Chris Hall

National Affairs Editor

Chris Hall is the CBC's National Affairs Editor and host of The House on CBC Radio, based in the Parliamentary Bureau in Ottawa. He began his reporting career with the Ottawa Citizen, before moving to CBC Radio in 1992, where he worked as a national radio reporter in Toronto, Halifax and St. John's. He returned to Ottawa and the Hill in 1998. Follow him on Twitter: @chrishallcbc