Double Blind

There is a lot of misinformation going around about the HST. The government also has its own misinformation page on HST. This post attempts to clarify them, in no particular order:

1. The PST punishes the production of goods that depend on a long chain of companies to produce. If a product takes 10 companies to produce before it hits the consumer, the sale/purchase of the product will accumulate the cost of PST down the value chain. With HST/GST, only the value-added is taxed. For the end-consumer, however, all they will see is an increased tax.

This is best illustrated with an example. If you are a company that takes in a material to produce a gizmo, you will purchase the material from a company (paying GST and PST). If you pay $10,000 for material, you will pay $500 in GST, and $700 in PST. The $700 is non-refundable, while the $500 is refundable. With the HST, you will pay $1,200 in HST, but this will be fully refundable. In theory, this will affect the pricing of the gizmos that the company sells as you no longer have to cost in the $500 PST you paid to the BC government.

This will mean lower cost inputs for companies, but it will also be very difficult for the consumer to detect this at the retail pricing level. The academic studies that the government quotes is very indirect, and quotes a single university professor (Michael Smart) that has issued a series of papers from his research.

For this reason, the “tax competitiveness” reason for justifying the HST has a theoretical basis, but one could also use it to justify a more direct business subsidy, such as a decrease in the corporate income tax rate.

2. The BC government’s assertions that it was a “sudden proposal” after the May 12, 2009 election is pure hogwash. This is fairly self-evident, as the government has known about the open solicitation to harmonize its sales tax. For example, the March 11, 2008 Hansard stated:

J. Brar: We can continue this debate as long as we want, but I certainly see that the minister is not prepared to respond to that and throws away those kinds of questions to the Minister of Finance.

I will move on to another question. There has been a recommendation on the table of the minister about PST and GST harmonizing. I would like to ask the minister where the minister is. Is that on the table, or is there any action on that?

Hon. R. Thorpe: First of all, that is tax policy, which would fall under the Minister of Finance. But I have commented on that in the past, and I will comment on that here today, because on this particular issue, the Minister of Finance and I have worked extremely closely and have both said exactly the same thing to the public.

It sounds very attractive to talk about harmonization, but one of the things that people have to realize is…. I can’t remember if it was the competition board or the Progress Board that estimated that flow-throughs through harmonization to taxpayers could amount to $2 billion a year. I think that careful consideration has to take place when you contemplate those kinds of things.

In British Columbia we have an extensive exemption list. Under GST, there aren’t exemptions. Let me just give you a couple of examples. One is that restaurant meals in British Columbia are PST-exempt. They are not GST-exempt. That is a serious question. One that I think all members in this House would have concern about is that children’s clothing is PST-exempt, but it’s not GST-exempt.

Those types of decisions have far-reaching ramifications, and I can say that harmonization has not been on our agenda. We have been in phase 1 of a review to simplify and streamline and phase 2 to have streamlining and simplification continued.

We have focused on reducing small business taxes from 4½ percent to 2½ percent and increasing the threshold from $200,000 to $400,000. We’ve reduced personal income tax across the board. Most British Columbians see at least a 37 percent reduction in their British Columbia income taxes, and over some 250,000 British Columbians now pay no income tax, compared to paying income tax in the year 2000.

The government is not stupid, and they also know that with Ontario’s experience with tax harmonization that they would be in for a rough ride. So this is why they timed it right after the election – since there is really nothing the public can do except voice their displeasure for the May 2013 election cycle – presumably so far in the future that nobody remembers anymore.

3. The restaurant industry rightfully will scream bloody murder over the HST – the primary components of their costs (food and labour) are both HST-exempt, while they have to charge their customers a full 12% tax on top of whatever they charge. They will be hit badly by this change, as well as anybody patronizing these businesses. This also includes places like Tim Hortons and Starbucks. They, as well as the end-consumers, are going to be the big losers with this tax.

4. Providers of services will also be disproportionately hit by the HST, as the bulk of their cost inputs (typically labour) do not include HST.

5. Because the HST is regressive, it will disproportionately affect low income families. People making $20,000 or less will get $230 at tax time, which really translates into a senior citizens’ buy-off. If you live with somebody, the combined income is a maximum of $25,000 to receive a $230/person benefit, which is yet another tax penalty to live with another person.

6. The characterization of the HST in this government publication (“Benefits for Taxpayers“) is a true piece of propoganda. There are no benefits to the consumer taxpayer other than the $30 million a year of tax savings to get rid of the PST collection (as the sales tax collection will now be delegated to the federal government).

7. The $1.6 billion federal subsidy the province is receiving (about $370 per resident in BC) is being stated to “preserve health care and education”, but this is also a scare tactic. The $1.6 billion will be applied to lessen the amount of borrowing required for the 2010 fiscal year’s deficit.

8. I have done the appropriate costing on the HST, and have determined that it will cost me significantly more (approximately $400), given the rate of my expenditures in 2008. Even if half of these costs were presumably decreased due to the decreased cost burdens on businesses, it still represents a significant tax increase. This is my primary reason for opposing the HST. My business will also be forced to charge an extra 7%, but because I deal with other businesses, this will be neutral.

9. In terms of policy, instead of offering an income-tested $230 for people making less than $20,000, the government should have increased the basic personal amount exemption for income taxes by a nominal amount (currently $9,373 for 2009) to offset the increased personal burden for individuals that the HST will put on consumers’ budgets. I do not think they will be doing this.

In order to be “sold” on the HST, I would need to see one of the following:

a. Some other tax reduction to justify the extra revenues the BC government will be collecting post-harmonization that will be collectible to middle-class BCers; or
b. A reduction in the HST rate (11%); or
c. Exemptions to the HST consistent with that of the PST.

As currently implemented, with the available information on the proposed implementation, I oppose the HST.

This entry was posted on Monday, August 31st, 2009 and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.