Abandoning a decade of B.C. Liberal tax policy, Premier Christy Clark plans to hike business taxes to pay for consumer relief - a fundamental reversal of the shift that was created by the harmonized sales tax.
In a bid to help the tax survive a binding, mail-in referendum this summer, Ms. Clark's new HST deal would include sending out cheques to half a million families and about 350,000 seniors later this year, while holding out the promise of a lower HST rate if the tax remains in place.
But if voters want to see her promised 10-per-cent HST rate, they'll not only have to support the tax in sufficient numbers, but they'll also have to re-elect the provincial Liberals to a fourth term in office.
The HST is being put to a referendum because of a massive public backlash over the new tax regime that also threatened to swamp the fortunes of the governing B.C. Liberals.
"We're going to pay for this by rebalancing the burden of taxation between big business and consumers," Ms. Clark told reporters Wednesday. "Lots of families will actually be better off."
Since taking office in 2001, the Liberals have steadily cut corporate taxes in the name of competition and job creation. But Ms. Clark is backing away from that: By Jan. 1, 2012, the province's corporate tax rate would rise from 10 per cent to 12 per cent, while Ontario's rate is scheduled to drop to 11 per cent next year.
Ms. Clark is proposing to cut the HST rate to 11 per cent from 12 per cent on July 1, 2012. The rate would drop to 10 per cent two years after that. In the meantime, the next provincial election must be called no later than May, 2013, and Ms. Clark has said she wants to head to the polls as early as this fall.
It is only at the 10-per-cent rate that the average B.C. family would be ahead - by $120 a year - compared with the former system of a separate provincial sales tax and federal GST. By 2014, however, the average family would have shelled out $815 more for goods and services than they would have under the old tax system.
The opposition New Democratic Party, which is urging voters to reject the HST, has made no commitment to cutting the rate. NDP Leader Adrian Dix said the proposed changes still favour big business over families, and he said voters shouldn't believe that the Liberals will lower the rate as promised: "They can't be trusted," he said.
To bridge the HST gap until the first rate cut, the government is offering a $175 cheque for every child under the age of 18, to be paid out later this year. As well, seniors with an income under $40,000 would get the one-time payout of $175.
Ms. Clark's plan would cost corporations $353-million each year by 2013, while small business would forgo a promised tax cut worth $280-million.
Just last month, B.C.'s Finance Minister, Kevin Falcon, scoffed at Mr. Dix's proposal to hike corporate taxes - but also revert to the former PST/GST system. Mr. Dix's approach "is to crank up taxes, attack business and destroy investment," said Mr. Falcon in April.
On Wednesday, Mr. Falcon said business tax hikes had to be part of the equation of selling the public on the HST. "Although we have never been a government to promote any tax increase, it is clear that business is a major beneficiary of the HST and an honest rebalancing is viewed by the public as appropriate and reasonable."
Jock Finlayson, executive vice-president of the Business Council of B.C., said the business community largely accepts the tax shift as a requirement to save the HST, which has generated $2-billion in savings each year for business.
"I'm not jumping up and down with enthusiasm over higher corporate taxes," he said. "But the net effect is we are still significantly better off."
Even with the business tax hikes, the government will have to dip into its contingency fund to make up lost revenue without derailing its plans to balance the budget in 2013. As well, the province will have to maintain its ambitious targets of spending restraint, likely extending a wage freeze in the public sector, already in place for two years, until the year 2015.