Putting her populist appeal to the test, Premier Christy Clark will announce her plan to "fix" the harmonized sales tax this week, sources say.
Ballots for the mail-in referendum on the HST should be arriving in the mail in just a few weeks, and Ms. Clark has promised a series of "bold" changes designed to persuade voters to support a tax that killed her predecessor's political career.
Her target is to address the $350 gap. According to an independent report, that is the additional cost paid by an average British Columbian family, every year, on routine expenditures under the HST. That report, commissioned by the B.C. government, is what Ms. Clark said persuaded her that the tax is flawed and requires tweaking.
There are no obvious small-ticket fixes, and Ms. Clark would have to trade off any costs somewhere else - either through tax hikes or spending cuts - to pay for the changes.
"Whatever option we come forward with will be within the framework of a balanced budget in 2013-14," Finance Minister Kevin Falcon said last week. The proposed changes would have to be passed through cabinet, which means the earliest public announcement would be Wednesday.
"Every tax decision you make has tradeoffs," he said. "None of them are ever easy."
But the cost of losing the HST referendum is high, too. The B.C. government would likely have to repay some or all of the $1.6-billion that Ottawa transferred to the province as part of the deal. In addition, the province would see a net revenue loss of $531-million in the first year, and $645-million in the second year.
Here are a few of the options Ms. Clark may be considering:
Cut a cheque
When Ontario introduced the HST at the same time as B.C., it blunted consumer anger by sending out a series of three cheques. Ms. Clark could belatedly follow suit. It's simple, immediate - and expensive. According to the same report that inspired her to change the HST, the annual cost of the HST to families is $1.3-billion.
Expand the low-income HST tax credit
Low-income families in B.C. do better under the current tax regime thanks to quarterly payments brought in as part of the HST package. Ms. Clark could, within her populist, family friendly agenda, raise the threshold to include middle-class families. But high-income earners, who spend more, pay more sales taxes under the HST. A family with an annual household income of $60,000 or more is paying far more than the $350 average. With an $80,000 income, the yearly hit is $650.
The province has used up all the room it has on the exemptions it was allowed to offer under the agreement with Ottawa, so anything more will have to be done under provincial jurisdiction. The government could offer point-of-sale rebates, as it does with the residential energy rebate, but it is far more complicated to deal with thousands of bike shops, for example, than a few major utilities. Income-tax credits for certain purchases, such as home renovations or health-club memberships, would be simpler but would have less immediate impact for voters who will have their say on the HST this summer.
Reduce the HST rate
The HST is a federal tax that merged the seven-per-cent provincial sales tax with the five-per-cent GST. The premier says the federal government won't allow B.C. to tamper with the terms of the deal before the July, 2012, reopener. So that would mean announcing a tax cut now which won't take effect for more than a year, raising concerns that consumers might postpone big-ticket purchases. Also, a reduction of one percentage point would cost the B.C. treasury $850-million per year.
Whatever option, or mix of options, Ms. Clark chooses, she'll also likely have to spell out how to pay for the changes. She could take a leaf from her New Democratic Party opponents and roll back the B.C. Liberal government's last three cuts to the corporate income-tax rate. That would defang her critics and provide $385-million in fiscal room, but it may not be enough to buy a sea change in public opinion.