Aside: INDIRECT TAXing & discriminatory taxation

How an off-hand comment from a public sector employee got me thinking ….


Somewhere in the many objections to the Public Services Sustainability Act, I saw a union member say:

Yeah that’s great. Manitobans are going to be able to sustain the same levels of public services, but I’m the one who has to pay for them.

They may have a point. Everything the Province has said about the PSSA fits with an understanding that:

  • Public services cost a lot;
  • If Manitoba is going to be able to continue to offer public services at the same level (the quality that Manitobans expect) then the Government has to find ways to save on the costs of public services;
  • Public servants’ salaries are the biggest expense associated with providing public services;
  • So, the PSSA limits those costs in order to save.

Thus, for the public employees affected by the Public Services Sustainability Act, the money they might have otherwise received under free collective bargaining could be re-framed as a charge or a levy, which is used to pay for the same services they provide. So, there is some truth to saying that, because of the PSSA, nurses pay for the hospitals, teachers pay for the schools, sheriffs pay for the courts, etc.

But what if you went one step further. What if that charge or levy (however you measure it) is actually a special tax on public employees?

In fact, the Manitoba Teachers Society has already suggested that the Province’s sustainability savings are equivalent to personal taxes on them. I don’t know how they got there, but this is the road I would take.

a tax by any other name … 

You can call it a levy, a regulatory charge, or a recipe for making barbequed bananas, but if, in the end, whatever you are doing is actually a tax, then it is a tax, and will suffer whatever consequences flow from that.

The question of whether something is actually a tax or not comes up more often than you might think. It usually occurs when a province’s law or levy is in its result an indirect tax (which only the Federal Government can do) or when a levy or some other charge isn’t really doing anything except acting like a tax, instead of what it is called.

There’s a five-part test set out in the leading case of Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357 which has been faithfully followed in many other cases. But, apart from possibly making some helpful side comments about what taxes are and what they look like, they probably aren’t of much use here. Most of those case are about some level of government making people pay certain (extra) amounts, as opposed to here, where the Government isn’t giving the money in the first place.

That doesn’t mean it is impossible. Theoretically speaking, there is no reason to suppose that a take-away cannot be a tax merely because it is a “negative income” as opposed to a positive taking by the tax man.

Nonetheless, it is highly unlikely that any court would consider wage freezes a tax based solely on the fact that public employees are experiencing a negative income or some way of seeing it as a levy or a charge. It’s too broad, and would be wildly impractical because it would open governments to questions of whether something is actually a tax whenever they reduced salaries or tried to save money anywhere. You would need a reasonable limit on the idea, and a way to connect it directly to governmental taxation. It would end up being one of those case-by-case questions which depends on the context. So, let’s look at this one.

If any court was going to go for this, I think the most crucial factor would be how much of a link there is between the measure and the current governmental tax policy. And, as it happens, in Manitoba, in the period of 2017-2019, the whole idea, justification, and rationale for the Public Services Sustainability Act is tied to the Province’s tax strategy.

This is actually most clear and explicit with respect to the teachers. As we have already seen, the Government was bragging to Manitobans that their school property taxes won’t go up any more than 2% each year, and that the Government can do that because they have [imposed a loss,  or a charge, or a negative income, or whatever term some lawyer comes up with to refer to this type of “tax”] on the teachers, which will save the school divisions all this money.

But you could also say similar things about the PSSA generally. At the same time that the Pallister Government is trying to save money on the salaries of all public employees, they have also been reducing personal income taxes as well as the PST. So, Government of Manitoba, what are you going to do about all that lost tax revenue? Well, they are going to replace it with the savings from the PSSA. But, if the sustainability savings from the PSSA are a replacement for tax revenue, aren’t they then, essentially, a source of tax revenue, and thus a tax, or equivalent to a tax?

It’s probably a high hurdle, but there is an argument to be made that the way the Government went about the PSSA and why, given the context, what they were actually doing was substantially imposing something equivalent to a tax on the wages of public employees.


So, then, if this is a tax, is it a discriminatory one?

Discrimination is prohibited by Section 15 of the Canadian Charter of Rights and Freedoms.

Section 15: Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

There’s no other way to say it – the law on Section 15 is tangled heap of accumulated untidiness. I’m no constitutional scholar, but this appears to have been due a series of unfortunate incidents, beginning with the way the wording was chosen, and followed by the manner in which the courts went about interpreting it. The result is a tortured maze of legal analysis, tests that create all sorts of problems when trying to fit your facts within them, and seems, in some circumstances, to end up denying relief for the very type of injustice that Section 15 was meant to prevent.

In any event, a brief overview.

Case law – discrimination under section 15

The leading case (there’s always a leading case) on Section 15 is Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143, which defined discrimination as:

A distinction, whether intentional or not but based on grounds relating to the personal characteristics of the individual or group which has the effect of imposing burdens, obligations, or disadvantages on such individual or group not imposed on others, or which withholds or limits access to opportunities, benefits, and advantages available to other members of society.

And, there’s a test (there’s always a test), originally from Andrews:

1.  Does the law create a distinction based on a ground in Section 15 or an analogous one?

2.  Is the distinction discriminatory?

The biggest problem is usually the first part – the grounds. If the basis that you claim you are being discriminated against is not already listed in Section 15, you have to show that it is analogous to them. Usually, this means you have to show that it is based on some “immutable personal characteristic” (something that you cannot change), or “constructively immutable personal characteristic” (something that you cannot change without an unacceptable cost to your personal identity).

Yeah, so you can see why this is so difficult. Most Section 15 cases die here.

But, assuming you are still alive, you then have to prove that this is discriminatory. This got pretty mangled in a case called R. v. Kapp [2008] 2 S.C.R. 483 with a requirement that it be “an affront to human dignity.”  The Supreme Court has backed off of that test since then, but it still isn’t really clear what “discrimination”, as opposed to merely making a distinction, really means.

There are four factors that have been suggested as guidelines, and in typical legal style are expressed in varying forms of word gumbo. Translated into normal-people speak, they are:

  1. Is the group historically disadvantaged or vulnerable in some way?
  2. Does the law respect the group’s needs in comparison to others who are receiving the same benefit or who are not subject to the same burden?
  3. Is it trying to help another group which is more seriously disadvantaged that the one complaining?
  4. How severe and targeted are the economic, constitutional, or social consequences of the law for the group in question? (The more serious, the more likely they will be discriminatory.)

The law on Section 15 cries out for review, so let us hope that some time soon, the Supreme Court of Canada will pick up their big judicial eraser, rub this all out, and then start over again.

a possible application to the PSSA

I’m not going to bore you (and me) with how this might play out in a full legal argument (that’s not my job, and besides, I’m too lazy), but let’s assume for the moment that you have convinced the court to make the leap – under the PSSA. public employees are, in effect being subjected to an equivalent tax. So, then, in the circumstances, are the wage restraints in the Public Services Sustainability Act unconstitutional because they amount to discriminatory taxation?

Discrimination as Employees

There have been many claims under Section 15 regarding differential treatment of employees. They usually fail.

When Section 15 came up in B.C. Health Services, they tried to argue that the differential wage treatment for health services employees was discriminatory because health services were typically provided by women or where women were a majority. (This is them trying to fit into the language of the law on Section 15 about “immutable characteristics” and that “the law is an affront to a person’s dignity” because it suggests that, as women, these employees are “less worthy, valuable, or deserving of consideration” than other people. I told you it was tortured.)

But all of this case law falls on one fact: it is hard to argue that making distinctions under the law based on the nature of your employment is discriminatory, because categories of employees are treated differently all the time, and for good reason. As the Supreme Court in B.C. Health Services put it,

Segregating different sectors of employment [is] in accordance with the long‑standing practice in labour regulation of creating legislation specific to particular segments of the labour force.

But, once you are looking at the people affected by the Public Services Sustainability Act, not as employees, but rather as taxpayers, the category comparison totally changes and this all becomes irrelevant.

Discrimination as Taxpayers

Before you go thinking that this might be good news, I found this article – Charter Equality Challenges to the Income Tax Act: The Unsuccessful Streak is Strong, 30 Years On. Thirty years of trying, and 134 cases, and no one has ever succeeded in arguing that they have been subjected to discriminatory taxation.

But let’s not let that disturb us. This is a new situation, and maybe it’s time. And besides, most of those cases deal with tax measures that differentiate between one group of taxpayers or another in the same way and on the same basis that the tax code has treated different categories of taxpayers since it began.

This situation is entirely unique. Here, it is arguable that if the public employees are being taxed, they are shouldering a greater proportion of the general tax burden for public services than anyone else. In short, while all Manitobans pay taxes to support public services, public employees are paying more.

You could even fit it into the Section 15 case law language if you had to (and you would if you were going there):

  • An immutable characteristic – I can’t help where I work.
  • An affront to their dignity – Hey, how come I have to pay higher taxes just because I work here?
  • A vulnerability – Only public employees get legislative wage restraints. Public employees are by definition vulnerable to laws creating differential taxes because their employer is the government, and governments make the law.
  • A serious economic effect – Wage restraints that are guaranteed to be lower that the increases in the cost of living over the first two years of the PSSA, and probably still lower for the last two years, would probably qualify. 

To paraphrase the Supreme Court in Andrews by inserting the facts in this case, would it not be fair to say that:

A rule which imposes an additional tax on a certain group of people solely on the basis of who their employer is, when there is no reason to for this group to bear a greater share of the communal tax burden that supports all public services generally, amounts to discriminatory taxation.

It would all fit with the underlying purpose of Section 15 – all people should be treated equally under the law, and there seems to be no legitimate reason to distribute the tax burden for public services unequally, by making one group of people pay more for these public services, while all Manitobans remain equally entitled to them.

a final thought

Legally speaking, this is just the bare bones of an argument that someone some day might want to make.

But practically speaking, the public employees seem to have a legitimate beef – they are, in effect, paying more to support public services, by being denied wage increases that are being used to replace general tax revenues that the Government would otherwise have.

Section 15 or not, and constitutionality/inequality aside, I think there’s a basis for saying that this is at least differential taxation, even if it doesn’t make it to discriminatory.

And, if the Government of Manitoba thinks differential taxation is Ok, then I have a suggestion for the Premier and his Ministers. If you want to keep the 2% cap on the amount school divisions can increase property taxes in their district, let’s get creative, and let the school boards get the rest of the money they need in another way.

Instead of making the teachers and every other public employee dig into their pockets, why don’t you let the school divisions make up the difference by allowing them to impose extra property taxes on some other limited group outside their district.

We’re going to pick on some people though, who should it be? I know, let’s say the school boards can levy taxes on people who live on Wellington Crescent in Winnipeg, with a special surcharge for anyone whose houses were purchased for more than $2 million. What do you think?

The Trial Begins

Setting the scene in Courtroom #210 as the trial of MFL v. Manitoba begins. We get some background and meet the players.

Opening Statements

The proceedings begin with opening statements. Here, the lawyers for each side give us an outline of the course they are going to take (and why it is going to take 13 days to get there).

The Testimony of Kevin Rebeck

The President of the Manitoba Federation of Labour testifies about consultations between the government and some Labour leaders prior to the PSSA being passed. They weren’t very fruitful, and there seems to have been some question as to whether the government was being truthful.

Passed but Not Proclaimed?

Why is the government waiting to proclaim the PSSA? I thought there was a financial emergency, and dire warnings of our precarious fiscal position. But it has been 2 1/2 years. Don’t they need it yet?

The Testimony of Elizabeth Carlyle

Elizabeth Carlyle gets cross-examined about what happened in a negotiation between CUPE and the Winnipeg School Division. It wasn’t a lot, and it doesn’t sound as though it was very good.

The Testimony of Dr. Mark Hudson

Remember when the faculty at the University of Manitoba when on strike in November of 2016? Dr. Mark Hudson is here to tell us why it happened. And he fills us in on what was happening between the University and the Province behind the scenes.

The Testimony of Tom Paci

Tom Paci appears on behalf of the Manitoba Teachers Society. His story? A quest for justice for Manitoba’s 15,000 teachers and an appeal to the gods of justice – how can we be bound by the PSSA when it is not law?

Indirect Taxing & Discriminatory Taxation

If a tax by any other name would be as taxing, could wage freezes be indirect taxation? And if members of public sector unions are paying more in taxes to support public services, would this qualify as discriminatory taxation?

The Testimony of Michelle Gawronsky

The leader of the Manitoba Government and General Employees Union recounts her experiences since the advent of the PSSA. Everything she says about her automatic approach to understanding concerns and finding ways to solve problems makes me think ” leader, leader, this is a great leader.”

The Super Six Speak

Six experienced union negotiators come to tell us about what has been happening in their collective bargaining worlds. We learn more about what the PSSA means for public sector unions and their collective agreements.

Labour’s Collective Bargaining Expert

Dr. Robert Hebdon testifies about the impact of the PSSA on collective bargaining in Manitoba’s public sector. It isn’t good.

The Testimony of Sheila Gordon

We end the union tales of collective bargaining under the PSSA in passed-but-not-proclaimed limbo with MGEU’s GEMA. Sheila Gordon, MGEU’s senior negotiator was there. And she is here to tell us how those negotiations did not go anywhere.

Labour’s Read-ins and One Last Reveal

You never know what read-ins from discovery might reveal.

The Testimony of Richard Groen

Richard Groen, an Assistant Deputy Minister from the Ministry of Finance, testifies about the Province’s budgets and such.

I was expecting him to demonstrate what all the financial fuss in 2017 was about, you know, why our financial ship was sinking so much that we needed all hands on deck. But …

A No-Compete Treat for the Labour Market?

I don’t understand why the government doesn’t think it should have to compete in its own labour market. It does everywhere else.

The Testimony of Garry Steski

Is it wrong to admit that before this I didn’t really know what a bond market was? Well, I do now, and we learn a little about how Manitoba’s bonds were affected by the fiscal challenges in 2016. Or not.

Bean Counters, Businessmen & Business of Government

If businessmen go into government to bring the principles of good business to government, then shouldn’t they act like good businessmen when they get there?

The Government’s Collective Bargaining Expert

It is best to talk about what happened here as little as possible. So we’ll talk a bit about the importance of turkey instead.

The Testimony of Aurel Tess

How a short day of seemingly tedious technical testimony on Manitoba’s Summary Financial Statements turned into a most unpleasant surprise.

Politicizing the Provincial Comptroller

Ok, Manitoba. Politicizing the Office of the Provincial Comptroller?

That takes the poop-cake.

The Government’s Economics Expert

The government’s economics expert, Dr. Livio Di Matteo, has a motto he lives by: Agimus Meliora – Let us do better.

It makes me wonder, Manitoba, can’t we do better than the PSSA?

Labour’s Economics Expert

Dr. Eugene “the Earnest” Beaulieu testifies that the PSSA is not only not necessary, it is a harsh measure that puts an unfair burden on public employees.

Bye Bye, Dumbo

Let’s take one last look at the Elephant in the Room, and then say goodbye.

The Mandamus Application

A day of argument about whether a statute that says “the Minister SHALL FORTHWITH” means that the Minister can decide not to do something and make up his own reasons for why he shouldn’t.

Decision on the Mandamus Application

Justice Keyser, the judge on the Mandamus Application, has spoken. Here’s a hint – MGEU wins.

Bill 9: We’re Gaming Again …

Before we begin all the good stuff, Garth Smorang has some objections to yet another litigation game the Government of Manitoba is playing.

Labour’s Final Argument

Labour’s last stand. Shannon-the-Hammer and Smorang-the-Smasher pull it all together and wrap it all up.

There is an awful lot of it, so Labour’s final arguments have been separated into four separate posts, which start here …

Butt-First Buffoonery

How did the Government of Manitoba get to such an embarrassing PSSA place? They backed into it.

The Government’s Final Argument

Forget the Elephant-in-the-Room.The Government of Manitoba has got many other ways to try to move the goalposts, as they try to change the game.

Kind of seems like they know they are losing.

Labour Replies

The Finale of the Finale. Labour replies.

(This means we are finally done. At least with the evidence and arguments.)

The Onion of Outrage

Why am I here? Why spend so much watching lawyers and judges and reading endless cases? It’s a pretty simple answer.

I was mad.

The Decision is In!!!

The Honourable Justice Joan McKelvey has ruled. Labour won. The PSSA is unconstitutional.

This is what she decided and why.

What Have We Learned?

There’s lots to discover from considering Justice McKelvey’s decision, and not just for labour lawyers. Let’s take a look at what we have learned.