Fight HST leader Bill Vander Zalm speaks to reporters while holding the boxing gloves award to him after the election referendum were announced to scrap the harmonized sales tax in Vancouver, British Columbia, Friday, August 26, 2011.Rafal Gerszak for the Globe and Mail
The dismantling of the harmonized sales tax in British Columbia is being called a setback for the province and Canada's economy as it tries to maintain a solid footing amid growing concerns of another global recession.
The referendum decision to bring back the old PST-GST tax split also dashes Ottawa's hopes of creating a more streamlined system across the country. B.C. will rejoin Saskatchewan, Manitoba and Prince Edward Island as provinces with a separate provincial tax.
"It's disappointing from the perspective of a strong competitive Canadian economy. It's a step back," said Jock Finlayson, executive vice-president of the Business Council of British Columbia.
"What has happened in B.C. will probably decrease the likelihood that other provinces will choose to do it. It's unfortunate from that perspective."
British Columbians voted 54 per cent against keeping the controversial 12-per-cent HST, rejecting the B.C. Liberal's argument the single tax system will save money and help the province better compete against places such as Ontario. Voters took advantage of unique provincial legislation to toss out the change announced in July 2009, two months after a provincial election during which the Liberals ruled out the HST.
Today, the HST's death sentence is creating disappointment not unlike that felt by B.C. voters when the tax was introduced two years ago.
"It's a sad day for intelligent tax policy," said Roger Martin, dean of the University of Toronto's Rotman School of Management and chairman of the Institute for Competitiveness & Prosperity. "Sales taxes are stupid taxes, there are no two ways about it."
Returning to the previous PST-GST system, which is considered more costly and confusing, could deter investment in B.C., which in turn hurts the national economy, said James Milway, the institute's executive director.
B.C. is Canada's third-largest economy representing 12 per cent of GDP and is a gateway to rapidly growing Asian countries such as China and India.
"We want the B.C. economy booming," said Mr. Milway. "Having a significant part of the economy that is doing something that is bad for investment and bad for employment, nobody wants that."
Dominating Canadian industries such as mining, energy and forestry could be impacted, experts say.
"The elimination of the HST will make B.C. less competitive for new mining investment than other Canadian jurisdictions, like Ontario and Quebec," said Pierre Gratton, president and CEO of the Mining Association of Canada. "It will harm project economics and job creation."
A further hit to the province is that it must repay Ottawa $1.6-billion in transitional funding it was given to impose the HST.
Premier Christy Clark has said it will be a big job for the province to pay back Ottawa and handle the lost revenue, while at the same time monitoring the potential larger impact a slowing global economy will have on B.C.
"We respect the decision made by the people of British Columbia," Jim Flaherty's press secretary, Chisholm Pothier, said in a statement. "We will work with the Government of B.C. on the transition."
The minister's office said the loss of the HST in B.C., which takes effect in 18 months, will have no impact on federal revenues since Ottawa doesn't receive money from the collection of the provincial component of the HST.
Ms. Clark says she and Prime Minister Stephen Harper agree they must quickly resolve any fallout from the province's scrapping of the HST.
Ms. Clark says she and Mr. Harper talked about the issue during an event Sunday in Abbotsford, B.C.
B.C.'s botched HST plan has given Saskatchewan Premier Brad Wall more reason to avoid implementing the tax system in his province.
Mr. Wall already rejects the argument that the tax harmonization alone increases Canada's competitiveness, but said B.C.'s experience is not something he wants to play out at home.
"I don't see how a very divisive policy, as this is, and the civil discord that comes with it, how that's part of an effective growth agenda. It's not part of ours," said Mr. Wall.
"A big provincewide fight I don't think is helpful. I also don't want to see any kind of divide between those who create jobs and those who are consumers, who are spending the money and need to be able to afford things."
With a file from the Canadian Press