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Robbery, Québec Style

Prof.Pierre Lemieux

Financial Post

26 August 2004

“To pay those taxes is certainly an important aspect of our democracy,” said the tough-talking Quebec revenue minister, after he had forced JTI-Macdonald into bankruptcy. “The laws of Quebec must be respected, out of respect to all Quebecers.” But what about Quebecers who don’t want this “totalitarian democracy” (as Bertrand de Jouvenel called our present system)?

Look at the facts. The Quebec Department of Revenue has imposed a $1.4-billion tax bill on cigarette manufacturer JTI-Macdonald for tobacco taxes on cigarettes that were exported from, but allegedly smuggled back into, Canada. Contrary to what has been said by many journalists, and contrary to what the state wants the populace to believe, JTIMacdonald’s involvement in smuggling has not been proven, there has been no trial and the “judgment” invoked is a rubber stamp.

People who think that we live in a free society have problems believing this. Follow the guide into the Brave New World.

On Aug. 10, the Quebec Department of Revenue issued to JTI-Macdonald an order to pay immediately $1,364,430,357.51, under Section 27.0.2 of the “Act respecting the Ministère du Revenu.” According to that section, the minister may issue such an order “if [he] is of the opinion that a person is attempting to avoid the payment of duties.” The Aug. 10 order states that JTI-Macdonald, previously known as RJR-Macdonald, “has carried tobacco smuggling operations between January 1, 1990, and December 31, 1998.” The order also declares that “the minister is of the opinion that JTI-Macdonald Corp. is attempting to avoid payment,” because the company has paid dividends and mortgaged assets.

The following day, “the minister” issued, under Section 13 of the same law, “a certificate attesting the exigibility of the debt and the amount owing,” which serves as “proof of the exigibility of the debt.” Section 13 also states: “When that certificate is filed in the office of the competent court, the clerk shall enter on the back of the certificate the date of its filing and shall render judgment in favour of the Deputy Minister for the amount contemplated in the certificate … Such judgment shall be equivalent to a judgment rendered by a competent court and shall have all effects thereof…”

Elementary, my dear Watson. The clerk is legally obliged to render a “judgment” that “shall be equivalent to a judgment.” Indeed, at the Superior Court in Montreal, on the very day the certificate was presented by a Revenue bureaucrat, an assistant clerk rubberstamped it, as he was obliged to. There is no judgment to be found in the database of the Superior Court, there is no judge’s signature and even the original press release of the Department of Revenue does not mention a judgment except subliminally, for the simple reason that there was no judgment. JTI-Macdonald was not able to defend itself because it was not heard because there was no trial.

These administrative powers of the Quebec Department of Revenue are not unique. The federal fisc and other provincial departments have similar tools. In all Western countries over the 20th century, the rule of law has been slowly replaced by administrative discretion, even when the legal forms are maintained ­- like an assistant clerk signing a simili judgment. Scholars such as Friedrich Hayek and Georges Ripert have identified this evolution as “the decline of law.”

To add to the parody of justice, the Quebec government, in trying to extort money from tobacco companies, is merely a sheepish follower of an American fad imported into Canada. One year ago this month, before the Superior Court of Ontario, the Canadian government launched a civil suit against JTI-Macdonald and related companies, claiming they had engaged in smuggling and owed at least $1.5-billion in federal tobacco taxes. The trial has not yet been held, but the Quebec government is trying to get its part of the loot in advance.

The federal civil suit has been stayed while smuggling-related criminal charges laid by the RCMP in February, 2003, are proceeding. But again, the trials are still to come. The Quebec government couldn’t wait. Why wait if you know that the accused are guilty?

Whether the civil and criminal charges brought by the feds have any validity, we don’t know yet. But we know that whoever participated in the smuggling, the root cause lies in public policy: If the state taxes or regulates the consumption or production of a good, it will be supplied illegally as soon as the added cost exceeds the risk premium required by black markets. We also know that the extortionists are not on the side of the producers or intermediaries, who only supply what consumers want.

That a legitimate company established in Canada in 1858 had to file for bankruptcy to try and protect itself from Leviathan is disturbing enough, because it could happen to any other business. But the trees should not hide the forest.

The $1.4-billion that the Quebec government is trying to extort from JTI-Macdonald amounts to a sizable 3.4% of its total tax revenues. It is tempting to paraphrase Willy Sutton, who robbed banks “because that’s where the money is,” and say that the state robs the tobacco companies for the same reason. This, I fear, is only half the truth. Another motivation is to social-engineer us into a pure and obedient society. And imagine what harm the Quebec government could do with $1.4-billion more to spend.

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