Sunday, March 02, 2008

620 Connaught Ltd. -- Good Result, Bad Reasoning

It is often said that the Canadian Constitution has nothing in it to protect property rights. But it is not quite so. There are constitutional restrictions on the ability of both levels of government to impose taxes, and these prohibitions indirectly protect property rights.

The provinces can only impose taxes if they are "direct" and "in the province." The federal government can employ "any mode or method of taxation"; however, the constitution still requires that taxes be set out in a money bill that originates in the House of Commons. Imposing a tax can't be a delegated power to be administered by some government official -- it must be done by Parliament itself. The Victorians who set up this thing thought these restrictions a big deal, since they go back to the English Bill of Rights and the final routing of the papists. "No taxation without representation" resounded in every Anglo place. And even if the restrictions on taking property through taxes are essentially procedural, they still do create a certain requirement of transparency.

However, these restrictions only work if the courts police the boundary of the concept of "taxation". There are no similar procedural restrictions on governments imposing fines or fees or user charges or pricing government property and services or taking property. So if these other ways of getting assets from private hands to the public treasury are not restricted in some way, the requirements for taxation cease to have meaning.

In principle, the courts recognize that non-taxation revenue measures have to be constitutionally scrutinized. Unfortunately, in its latest foray, the SCC gives way too much leeway to the man.

The case involved liquor licensing fees in Jasper National Park. If you want to sell booze in the Park, you have to get a licence, and pay $75 per year plus 3% of the value of sales from spirits and wines and 2% of the value of sales from beer. (The Pithlord complains parenthetically about the populist favouritism to beer drinkers.) Rothstein J. says that this is all OK, and not a tax, so long as the costs of operating the park far exceed the revenues generated.

That seems like the wrong test to me. If this were really about regulatory fees, the issue shouldn't be the cost of the parks as a whole, but the incremental costs of serving alcohol in them. The Feds don't seem to have had any evidence of these, so we get a lot of handwaving about "leeway", which is a bad way of enforcing the constitution.

There might have been a better way to look at this case. All the talk about "regulatory schemes" is a bit off topic, since the Feds' role here is not as regulator but landlord. It owns the park, and is really charging commercial rent. In the absence of monopoly power, the government can't get more out of its contracts than a private owner would anyway. In a sense, any captive audience is subject to monopoly power to some extent (which is why beer costs so much in airports), but since the returns to that monopoly situation will inevitably be extracted by someone (either the licensee or the government), there isn't any reason for the courts to get involved.

If the issue is recast as one of the Feds use of its property, though, it would provide some protection to licensees from regulatory increases in fees if those fees are inconsistent with the original license agreement. The State-as-sovereign can, of course, extract money from people in excess of what it can bargain for, but when it does it starts to look like a tax. So a narrower basis for decision would have been better.

The more significant problem with the decision is that, as written, it applies even to those fees that government charges for actual regulation, which is inevitably monopolistic. The lack of any need for a real link between the fees and the costs created by the party they are imposed is disturbing.

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