10/09/2013 11:16 EDT | Updated 01/23/2014 06:58 EST

Manitoba government was told by bureaucrats to follow the law on sales tax hike

WINNIPEG - The Manitoba government raised the provincial sales tax in July despite a caution from senior bureaucrats that it was first required to pass the enabling legislation, newly released documents show.

The revelation prompted renewed accusations from the opposition Wednesday that the tax hike, to eight per cent from seven, is illegal.

A briefing note prepared in February by two Finance Department officials, including director of taxation analysis Richard Groen, pointed out that any sales tax increase has to be approved in a referendum under the provincial balanced budget law established in the 1990s.

The only other option, the note said, was to eliminate the referendum requirement through a "notwithstanding clause." Either move, the note added, would have to occur before the tax hike.

"The referendum must be held, or the notwithstanding clause enacted, before a rate increase could take effect," the document states.

The document was obtained by the Canadian Taxpayers Federation under the province's freedom-of-information law.

The NDP government took a slightly different route.

It introduced a bill in April to simultaneously raise the tax and suspend the need for a referendum. That bill, however, remains stuck in the legislature due to stalling tactics by the Progressive Conservatives.

Even though the bill was stalled, the NDP government proceeded with the tax hike as planned on July 1.

Finance Minister Stan Struthers said Wednesday he received legal advice that governments can raise taxes before passing the required legislation.

Governments of all stripes have done it in provincial budgets, he pointed out — raising taxes on tobacco, gas or other goods on budget day, weeks before the budget bill goes to a final vote.

"We got legal advice from legal experts and they assured us that this was the established practice that any government could use," Struthers said.

The Tories said the sales tax is different because of the long-standing legal requirement for a referendum.

Struthers, however, pointed to court rulings that have established that legislatures can change their own laws, and one government cannot tie the hands of a future government by imposing restrictions on legal changes.

The concept of Parliamentary supremacy, as its known, was referenced in some of the court rulings that supported the federal government's changes to the Canadian Wheat Board.

The government eliminated the board's monopoly on western wheat and barley in 2012 without holding a plebiscite among grain producers that was spelled out in law.

Large portions of the briefing notes obtained by the Canadian Taxpayers Federation have been blacked out under exemptions in the freedom-of-information law.

The contents of a chart that appears to outline different options is blacked out, as are two or three words at the end of the memo's title: "Increase the Retail Sales Tax (RST) rate..."

The sections were omitted under a section of the freedom-of-information law that prohibits the release of information that can "potentially harm the economic and financial interests" of the government.

Federation spokesman Colin Craig said the blacked-out sections may indicate that the government considered raising the sales tax even higher — to nine or 10 per cent.

Not so, said Struthers.

"No. We knew what we needed in terms of revenue and we knew that the (eight per cent) option would get us to where we needed to be."

The sales tax hike has been cited as a prime factor in the NDP's slumping popularity. Recent opinion polls suggest the NDP is several points behind the Tories, although the next election is still at least two years away.

The Tories have promised to launch a court challenge against the tax hike once the law is passed.

A final vote in the legislature, where the NDP have a solid majority, is expected in early December.