Suing Ontario over the Health Tax?

During the run-up to the most recent election, the current leader of the Ontario Liberal Party [Dalton McGuinty] signed an agreement in September, 2003, not raise taxes in Ontario. There is also a law on the books prohibiting the provincial gubmnt from raising taxes without an election or referendum.

Nevertheless, shortly after the Liberals defeated the Conservatives in the last provincial election, they declared that the province's finances were in much worse shape than they had imagined and imposed a health "levy" to help with the costs of running the medical system in the province.

The Canadian Taxpayers Federation is suing the Province and the Premier for violation of the law and breach of contract. The case has been delayed a few months but finally goes to court on Monday, November 15th.

Of course, "impossibility" is sometimes a defence in a breach of contract suit; it might even be raised in defence of the gubmnt's alleged violation of the law. But it's difficult to understand how the gubmnt can claim they didn't know how badly the province was in debt when serious fiscal mismanagement by the conservatives was so well-known that it became a campaign issue for many of the liberal candidates.

So let me raise the usual questions from Economic Analysis of Law: What are the risks? and who is the least-cost avoider of the risks?

One of the risks, of course, is that the taxpayers will foot the legal bills, regardless of the outcome of the suit!

Thanks to Jim Chapman for the pointer on this issue.